ALLIED HEALTHCARE PRODUCTS INC - Annual Report: 2010 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
(Mark
One)
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year June 30, 2010
OR
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from_________ to_________
Commission
File Number 0-19266
ALLIED
HEALTHCARE PRODUCTS, INC.
[Exact
name of registrant as specified in its charter]
|
DELAWARE
|
25-1370721
|
|
(State
or other jurisdiction of
Incorporation
or organization)
|
(I.R.S.
employer identification no.)
|
|
1720
Sublette Avenue
St.
Louis, Missouri
(Address
of principal executive offices)
|
63110
(zip
code)
|
Registrant’s
telephone number, including area code (314) 771-2400
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
|
Title of each class
|
Name
of each exchange
on which registered
|
|
Common
Stock, $.01
|
The
NASDAQ Stock Market LLC
|
SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT: None
Indicate
by check mark if the registrant is a well –known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark whether the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act. Yes ¨ No x
Indicate by check mark whether the
Registrant: (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes. x No. ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this
chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes. ¨ No. ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated
filer, accelerated filer and “smaller reporting company” in Rule 12 b-2 of the
Exchange Act.
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨ (Do
not check if a smaller reporting company)
|
Smaller reporting
company x
|
Indicate by check mark whether the
registrant is a shell company (as defined in Exchange Act Rule 12 b-2).
Yes ¨ No x
As
of December 31, 2009, the last business day of the registrant’s most recently
completed second fiscal quarter; the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately
$24,344,622.
As
of September 19, 2010, there were 8,093,386 shares of common stock, $0.01 par
value (the “Common Stock"), outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Proxy Statement to be dated
October 8, 2010 (portion) (Part
III)
ALLIED
HEALTHCARE PRODUCTS, INC.
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“SAFE
HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM
ACT OF 1995
Statements
contained in this Report, which are not historical facts or information, are
“forward-looking statements.” Words such as “believe,” “expect,”
“intend,” “will,” “should,” and other expressions that indicate future events
and trends identify such forward-looking statements. These
forward-looking statements involve risks and uncertainties, which could cause
the outcome and future results of operations and financial condition to be
materially different than stated or anticipated based on the forward-looking
statements. Such risks and uncertainties include both general
economic risks and uncertainties, risks and uncertainties affecting the demand
for and economic factors affecting the delivery of health care services, and
specific matters which relate directly to the Company’s operations and
properties as discussed in Items 1, 1A, 3 and 7 in this Report. The
Company cautions that any forward-looking statements contained in this report
reflect only the belief of the Company or its management at the time the
statement was made. Although the Company believes such
forward-looking statements are based upon reasonable assumptions, such
assumptions may ultimately prove inaccurate or incomplete. The
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement was
made.
General
Allied Healthcare Products, Inc.
(“Allied”, the “Company”, ‘we”, or “us”) manufactures a variety of respiratory
products used in the health care industry in a wide range of hospital and
alternate site settings, including sub-acute care facilities, home health care
and emergency medical care. The Company’s product lines include respiratory care
products, medical gas equipment and emergency medical products. The
Company believes that it maintains significant market shares in selected product
lines.
The Company’s products are marketed
under well-recognized and respected brand names to hospitals, hospital equipment
dealers, hospital construction contractors, home health care dealers, emergency
medical products dealers and others. Allied’s product lines
include:
Respiratory Care Products
|
|
·
|
respiratory
care/anesthesia products
|
· home
respiratory care products
Medical Gas Equipment
· medical
gas system construction products
· medical
gas system regulation devices
· disposable
oxygen and specialty gas cylinders
· portable
suction equipment
Emergency Medical Products
· respiratory/resuscitation
products
· trauma
and patient handling products
The
Company’s principal executive offices are located at 1720 Sublette Avenue, St.
Louis, Missouri 63110, and its telephone number is (314)
771-2400.
Markets
and Products
In fiscal
2010, respiratory care products, medical gas equipment and emergency medical
products represented approximately 26%, 52% and 22%, respectively, of the
Company’s net sales. In comparison, in fiscal 2009, respiratory care
products, medical gas equipment and emergency medical products represented
approximately 24%, 57%, and 19%, respectively, of the Company’s net sales. The
Company operates in a single industry segment and its principal products are
described in the following table:
1
|
Product
|
Description
|
Principal
Brand Names
|
Primary Users
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|||
|
Respiratory
Care Products
|
||||||
|
Respiratory
Care/Anesthesia Products
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Large volume compressors;
ventilator calibrators; humidifiers and mist tents; and CO2
absorbent
|
Timeter
|
Hospitals
and sub-acute facilities
|
|||
|
Home
Respiratory Care Products
|
O2
cylinders; pressure regulators; nebulizers; portable large volume
compressors; portable suction equipment and disposable respiratory
products
|
Timeter;
B&F; Schuco
|
Patients
at home
|
|||
|
Medical
Gas Equipment
|
||||||
|
Construction
Products
|
In-wall
medical gas system components; central station pumps and compressors and
headwalls
|
Chemetron;
Oxequip
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Hospitals
and sub-acute facilities
|
|||
|
Regulation
Devices
|
Flowmeters;
vacuum regulators; pressure regulators and related
products
|
Chemetron;
Oxequip; Timeter
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Hospitals
and sub-acute facilities
|
|||
|
Disposable
Cylinders
|
Disposable
oxygen and gas cylinders
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Lif-O-Gen
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First
aid providers and specialty gas distributors
|
|||
|
Suction
Equipment
|
Portable
suction equipment and disposable suction canisters
|
Gomco;
Allied; Schuco
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Hospitals,
sub-acute facilities and homecare products
|
|||
|
Emergency
Medical Products
|
|
|||||
|
Respiratory/Resuscitation
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Demand
resuscitation valves; bag mask resuscitators; emergency transport
ventilators, oxygen regulators, SurgeX - surge suppressing post
valve, and mass casualty ventilation line
|
LSP;
Omni-Tech
|
Emergency
service providers
|
|||
|
Trauma
and Patient Handling Products
|
Spine
immobilization products; pneumatic anti-shock garments, trauma burn kits
and Xtra backboards
|
LSP
|
Emergency
service providers
|
Respiratory
Care Products
Market. Respiratory
care products are used in the treatment of acute and chronic respiratory
disorders such as asthma, emphysema, bronchitis and pneumonia. Respiratory care
products are used in both hospitals and alternate care
settings. Sales of respiratory care products are made through
distribution channels focusing on hospitals and other sub-acute
facilities. Sales of home respiratory care products are made through
durable medical equipment dealers through telemarketing, and by contract sales
with national chains.
Respiratory
Care/Anesthesia Products. The Company manufactures and sells a
broad range of products for use in respiratory care and anesthesia
delivery. These products include large volume air compressors,
calibration equipment, humidifiers, croup tents, equipment dryers and a complete
line of respiratory disposable products such as oxygen tubing, facemasks,
cannulas and ventilator circuits.
Home Respiratory
Care Products. Home respiratory care products represent one of
Allied’s potential growth areas. Allied’s broad line of home
respiratory care products include aluminum oxygen cylinders, oxygen regulators,
pneumatic nebulizers, portable suction equipment and the full line of
respiratory disposable products.
2
Medical
Gas Equipment
Market. The market
for medical gas equipment consists of hospitals, alternate care settings and
surgery centers. The medical gas equipment group is broken down into
three separate categories: construction products, regulation devices and suction
equipment, and disposable cylinders.
Construction
Products. Allied’s medical gas system construction products
consist of in-wall medical system components, central station pumps and
compressors, and headwalls. These products are typically installed
during construction or renovation of a health care facility and are built in as
an integral part of the facility’s physical plant. Typically, the
contractor for the facility’s construction or renovation purchases medical gas
system components from manufacturers and ensures that the design specifications
of the health care facility are met.
Allied’s in-wall components, including
outlets, manifolds, alarms, ceiling columns and zone valves, serve a fundamental
role in medical gas delivery systems.
Central
station pumps and compressors are individually engineered systems consisting of
compressors, reservoirs, valves and controls designed to drive a hospital’s
medical gas and suction systems. Each system is designed specifically
for a given hospital or facility, which purchases pumps and compressors from
suppliers. The Company’s sales of pumps and compressors are driven,
in large part, by its share of the in-wall components market.
The
Company’s construction products are sold primarily to hospitals, alternate care
settings and hospital construction contractors. The Company believes
that it holds a major share of the U.S. market for its construction products,
that these products are installed in more than three thousand hospitals in the
United States and that its installed base of equipment in this market will
continue to generate follow-on sales. The Company believes that most hospitals
and sub-acute care facility construction spending is for expansion or renovation
of existing facilities. Many hospital systems and individual
hospitals undertake major renovations to upgrade their operations to improve the
quality of care they provide, reduce costs and attract patients and
personnel.
Regulation
Devices and Suction Equipment. The Company’s medical gas
system regulation products include flowmeters, vacuum regulators and pressure
regulators, as well as related adapters, fittings and hoses which measure,
regulate, monitor and help transfer medical gases from walled piping or
equipment to patients in hospital rooms, operating theaters or intensive care
areas. The Company’s leadership position in the in-wall components
market provides a competitive advantage in marketing medical gas system
regulation devices that are compatible with those components.
Portable
suction equipment is typically used when in-wall suction is not available or
when medical protocol specifically requires portable suction. The
Company also manufactures disposable suction canisters, which are clear
containers used to collect the fluids suctioned by in-wall or portable suction
systems. The containers have volume calibrations, which allow the
medical practitioner to measure the volume of fluids suctioned.
The
market for regulation devices and suction equipment includes hospital and
sub-acute care facilities. Sales of these products are made through
the same distribution channel as our respiratory care products. The
Company believes that it holds a significant share of the U.S. market in both
regulation devices and suction equipment.
Disposable
Cylinders. Disposable oxygen cylinders are designed to provide
oxygen for short periods of time in emergency situations. Since they
are not subjected to the same pressurization as standard containers, they are
much lighter and less expensive than standard gas cylinders. The
Company markets filled disposable oxygen cylinders through industrial safety
distributors and similar customers, principally to first aid providers,
restaurants, industrial plants and other customers that require oxygen for
infrequent emergencies.
3
Emergency
Medical Products
Market. Emergency medical
products are used in the treatment of trauma-induced injuries. The
Company’s emergency medical products provide patient resuscitation or
ventilation during cardiopulmonary resuscitation or respiratory distress as well
as immobilization and treatment for burns. The Company has seen
growth in the trauma care venue for health care services, as the trend continues
toward providing health care outside the traditional hospital
setting. The Company also expects that other countries will develop
trauma care systems in the future, although no assurance can be given that such
systems will develop or that they will have a favorable impact on the
Company. Sales of emergency medical products are made through
specialized emergency medical products distributors to ambulance companies, fire
departments and emergency medical systems volunteer organizations.
The
emergency medical products are broken down into two categories:
respiratory/resuscitator products and trauma patient handling
products.
Respiratory/Resuscitation
Products. The Company’s respiratory/resuscitation
products include demand resuscitation valves, portable resuscitation systems,
bag masks and related products, emergency transport ventilators, precision
oxygen regulators, minilators, multilators and humidifiers.
Demand
resuscitation valves are designed to provide 100% oxygen to breathing or
non-breathing patients. In an emergency situation, they can be used
with a mask or tracheotomy tubes and operate from a standard regulated oxygen
system. The Company’s portable resuscitation systems provide fast,
simple and effective means of ventilating a non-breathing patient during
cardiopulmonary resuscitation and 100% oxygen to breathing patients on demand
with minimal inspiratory effort. The Company also markets a full line
of disposable and reusable bag mask resuscitators, which are available in a
variety of adult and child-size configurations. Disposable
mouth-to-mask resuscitation systems have the added advantage of reducing the
risk of transmission of communicable diseases.
The
Company’s autovent transport ventilator can meet a variety of needs in different
applications ranging from typical emergency medical situations to more
sophisticated air and ground transport. Each autovent is accompanied
by a patient valve, which provides effective ventilation during cardiopulmonary
resuscitation or respiratory distress. When administration of oxygen
is required at the scene of a disaster, in military field hospitals or in a
multiple-victim incident, Allied’s minilators and multilators are capable of
providing oxygen to one or a large number of patients.
The
Company’s mass casualty ventilation line has been designed to meet the unique
ventilation demands that can occur during a mass casualty event or
pandemic. The mass casualty products are lightweight, robust, and
easy to operate. Designed for surge capacity, these products are
capable of providing reliable ventilation even in unpredictable environments and
conditions, and require minimal periodic maintenance.
To
complement the family of respiratory/resuscitation products, the Company offers
a full line of oxygen product accessories. This line of accessory
products includes reusable aspirators, tru-fit masks, disposable cuffed masks
and related accessories.
Trauma and
Patient Handling Products. The Company’s trauma and patient
handling products include spine immobilization products, pneumatic anti-shock
garments and trauma burn kits. Spine immobilization products include
a backboard that is designed for safe immobilization of injury victims and
provides a durable and cost effective means of emergency patient transportation
and extrication. The infant/pediatric immobilization board is durable and scaled
for children. The half back extractor/rescue vest is useful for both
suspected cervical/spinal injuries and for mountain and air
rescues. The Company’s pneumatic anti-shock garments are used to
treat victims experiencing hypovolemic shock. Allied’s trauma burn
kits contain a comprehensive line of products for the treatment of trauma and
burns.
4
Sales
and Marketing
Allied
sells its products primarily to respiratory care/anesthesia product
distributors, hospital construction contractors, emergency medical equipment
dealers and directly to hospitals. The Company maintains a sales
force of 28 sales professionals, all of whom are full-time employees of the
Company.
The sales
force includes nine domestic hospital and homecare specialists, ten domestic
construction specialists, and five international sales
representatives. A total of four sales managers lead each of the
sales groups. Two product managers are responsible for the marketing
activities of our product lines.
The
domestic hospital specialists are responsible for sales of all Allied products
with the exception of construction products within their
territory. The domestic construction specialists are responsible for
sales of all Allied construction products within their
territory. Sales of products are accomplished through respiratory
care/anesthesia distributors for the regulation devices, suction equipment,
respiratory care/anesthesia products and disposable
cylinders. Emergency products are principally sold to ambulance
companies, fire departments and emergency medical systems volunteer
organizations through specialized emergency medical products
distributors.
Construction
products are sold direct to hospital construction contractors and through
distributors.
The
Company’s international specialists sell all Allied products within their
territory. Allied’s net
sales to foreign markets totaled 19% of total net sales in fiscal
2010, unchanged from fiscal years 2009 and 2008. International sales
are made through a network of dealers, agents and U.S. exporters who
distribute the Company’s products throughout the world. Allied has
market presence in Canada, Mexico, Central and South America, Europe, the Middle
East and the Far East.
Manufacturing
Allied’s
manufacturing processes include fabrication, electro-mechanical assembly
operations and plastics manufacturing. A significant part of Allied’s
manufacturing operations involves electro-mechanical assembly of proprietary
products and the Company is vertically integrated in most elements of metal
machining and fabrication. Most of Allied’s hourly employees are
involved in machining, metal fabrication, plastics manufacturing and product
assembly.
Allied
manufactures small metal components from bar stock in a machine shop, which
includes automatic screw machines, horizontal lathes and drill presses and
computer controlled machining centers. The Company makes larger metal components
from sheet metal using computerized punch presses, brake presses and
shears. In its plastics manufacturing processes, the Company utilizes
both extrusion and injection molding. The Company believes that its
production facilities and equipment are in good condition and sufficient to meet
planned increases in volume over the next few years and that the conditions in
local labor markets should permit the implementation of additional shifts and
days operated.
Research and
Development
Allied’s research and development
department group is responsible for the development of new products. This
group is staffed with mechanical and electrical engineers.
During
the fiscal year 2010 the research and development group completed development of
an auxiliary battery pack for the MCV100 and MCV200 mass casualty
ventilators. This battery pack extends the operating time of the
ventilators by 14 hours if running on internal compressors or by 42 hours if
running on an oxygen supply. The group also completed some upgrades to the
4000 series construction manifold.
The group
is actively working on other products that were not released during fiscal year
2010.
5
As part
of the agreement relating to the withdrawal of the Baralyme® product in August
2004, Abbott Laboratories agreed to pay to Allied up to $2,150,000 in product
development costs to pursue development of a new carbon dioxide absorption
product for use in connection with inhalation anesthetics that does not contain
potassium hydroxide and does not produce a significant exothermic reaction with
currently available inhalation agents. Allied has pursued development
of a new carbon dioxide absorption product, resulting in its new Litholyme®
product. As of June 30, 2010 the Company had been reimbursed
$2,150,000 by Abbott. More detailed information concerning this
agreement is included in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Government
Regulation
The
Company’s products and its manufacturing activities are subject to extensive and
rigorous government regulation by federal and state authorities in the United
States and other countries. In the United States, medical devices for
human use are subject to comprehensive review by the United States Food and Drug
Administration (the “FDA”). The Federal Food, Drug, and Cosmetic Act
(“FDC Act”), and other federal statutes and regulations, govern or influence the
research, testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance
with applicable requirements can result in warning letters, fines, recall or
seizure of products, injunction, refusal to permit products to be imported into
or exported out of the United States, refusal of the government to clear or
approve marketing applications or to allow the Company to enter into government
supply contracts, or withdrawal of previously approved marketing applications
and criminal prosecution.
The
Company is required to file a premarket notification in the form of a premarket
approval (“PMA”) with the FDA before it begins marketing a new medical device
that offers new technology that is currently not on the market. The
Company also must file a premarket notification in the form of a 510(k) with the
FDA before it begins marketing a new medical device that utilizes existing
technology for devices that are currently on the market. The 510(k)
submission process is also required when the Company makes a change or modifies
an existing device in a manner that could significantly affect the device’s
safety or effectiveness.
Compliance
with the regulatory approval process in order to market a new or modified
medical device can be uncertain, lengthy and, in some cases,
expensive. There can be no assurance that necessary regulatory
approvals will be obtained on a timely basis, or at all. Delays in
receipt or failure to receive such approvals, the loss of previously received
approvals, or failure to comply with existing or future regulatory requirements
could have a material adverse effect on the Company’s business, financial
condition and results of operations.
The Company manufactures and
distributes a broad spectrum of respiratory therapy equipment, emergency medical
equipment and medical gas equipment. To date, all of the Company’s
FDA clearances have been obtained through the 510(k) clearance
process. These determinations are very fact specific and the FDA has
stated that, initially, the manufacturer is best qualified to make these
determinations, which should be based on adequate supporting data and
documentation. The FDA however, may disagree with a manufacturer’s
determination not to file a 510(k) and require the submission of a new 510(k)
notification for the changed or modified device. Where the FDA
believes that the change or modification raises significant new questions of
safety or effectiveness, the agency may require a manufacturer to cease
distribution of the device pending clearance of a new 510(k)
notification. Certain of the Company’s medical devices have been
changed or modified subsequent to 510(k) marketing clearance of the original
device by the FDA. Certain of the Company’s medical devices, which
were first marketed prior to May 28, 1976, and therefore, grandfathered and
exempt from the 510(k) notification process, also have been subsequently changed
or modified. The Company believes that these changes or modifications
do not significantly affect the devices’ safety or effectiveness, or make a
major change or modification in the devices’ intended uses and, accordingly,
submission of new 510(k) notification to the FDA is not
required. There can be no assurance, however, that the FDA would
agree with the Company’s determinations.
In
addition, commercial distribution in certain foreign countries is subject to
additional regulatory requirements and receipt of approvals that vary widely
from country to country. The Company believes it is in compliance
with regulatory requirements of the countries in which it sells its
products.
6
The
Medical Device Reporting regulation requires that the Company provide
information to the FDA on deaths or serious injuries alleged to have been
associated with the use of its devices, as well as product malfunctions that
would likely cause or contribute to death or serious injury if the malfunction
were to recur. The Medical Device Tracking regulation requires the
Company to adopt a method of device tracking of certain devices, such as
ventilators, which are life-supporting or life-sustaining devices used outside
of a device user facility, some of which are permanently implantable
devices. The regulation requires that the method adopted by the
Company will ensure that the tracked device can be traced from the device
manufacturer to the person for whom the device is indicated (i.e., the
patient). In addition, the FDA prohibits a company from promoting an
approved device for unapproved applications and reviews a company’s labeling for
accuracy. Labeling and promotional activities also are in certain
instances, subject to scrutiny by the Federal Trade
Commission.
The
Company’s medical device manufacturing facilities are registered with the FDA,
and have received ISO 9001 certification under the Medical Device Directive (MDD
- European) for certain products in 1998. The Company’s St. Louis facility is
ISO 9000 certified. The Company is subject to audit by the FDA, ISO,
and European auditors for compliance with the Good Manufacturing Practices
(“GMP”), the ISO and MDD regulations for medical devices. These
regulations require the Company to manufacture its products and maintain its
products and documentation in a prescribed manner with respect to design,
manufacturing, testing and control activities. The Company also is
subject to the registration and inspection requirements of state regulatory
agencies.
There can
be no assurance that any required FDA or other governmental approval will be
granted, or, if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Company’s
proposed products and cause the Company to undertake costly
procedures. In addition, the extent of potentially adverse government
regulation that might arise from future administrative action or legislation
cannot be predicted. Any failure to obtain, and maintain, such
approvals could adversely affect the Company’s ability to market its products or
proposed products.
Sales of medical devices
outside the United States are subject to foreign regulatory requirements that
vary widely from country to country. Medical products shipped to the
European
Community
generally
require CE
certification. The letters 'CE' are an abbreviation of
Conformité Européenne, French for European conformity. Whether or not FDA
approval has been obtained, approval of a device by a comparable regulatory
authority of a foreign country generally must be obtained prior to the
commencement of marketing in those countries. The time required to
obtain such approvals may be longer or shorter than that required for FDA
approval. In addition, FDA approval may be required under certain
circumstances to export certain medical devices.
The
Company is also subject to numerous federal, state and local laws relating to
such matters as safe working conditions, manufacturing practices, environmental
protections, fire hazard control and disposal of hazardous or potentially
hazardous substances.
Patents,
Trademarks and Proprietary Technology
The Company
owns and maintains domestic and foreign patents on several products it believes
are useful to the business and provide the Company with an advantage over its
competitors. During the fiscal year 2010 the Company continued to pursue
patents on the construction alarm, Mask Restraint, EPV100 Ventilator and
Litholyme®. A
United States patent for the Litholyme® carbon dioxide
absorbent product was obtained in July 2010 and will expire in
2027. Patents which expire during the period 2010 to 2027 in the
aggregate are believed to be of material importance in the operation of Allied’s
business. Allied believes that no single patent, except that related
to Litholyme, is material in relation to Allied’s business as a
whole. Although the expiration of an individual patent may lead to
increased competition, other factors such as a competitor’s need to obtain
regulatory approvals prior to marketing a competitive product and the nature of
the market, may allow Allied to continue to have commercial advantages after the
expiration of the patent.
7
The
company owns and maintains U.S. trademarks for Allied Healthcare Products, Inc.,
Chemetron, Gomco, Oxequip, Lif-O-Gen, Life Support Products, Timeter, Vacutron,
and Schuco, its principal trademarks. Registrations for these trademarks
are also owned and maintained in countries where such products are sold and such
registrations are considered necessary to preserve the Company’s proprietary
rights therein.
Environmental
and Safety Regulation
The
Company is subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage and disposal of
toxic and hazardous wastes. The Company is also subject to the
federal Occupational Safety and Health Act and similar state
statutes. From time to time the Company has been involved in
environmental proceedings involving clean up of hazardous
waste. There are no such material proceedings currently
pending. Costs of compliance with environmental, health and safety
requirements have not been material to the Company. The Company
believes it is in material compliance with all applicable environmental laws and
regulations.
Competition
The
Company has different competitors within each of its product
lines. Many of the Company’s principal competitors are larger than
Allied and the Company believes that most of these competitors have greater
financial and other resources. The Company competes primarily on the
basis of price, quality and service. The Company believes that it is
well positioned with respect to product cost, brand recognition, product
reliability, and customer service to compete effectively in each of its
markets.
Employees
At June
30, 2010, the Company had approximately 307 full-time
employees. Approximately 190 employees in the Company’s principal
manufacturing facility located in St. Louis, Missouri, are covered by a
collective bargaining agreement that will expire on May 31, 2012.
Executive
Officers of the Registrant
This
section provides information regarding the executive officers of the Company who
are appointed by and serve at the pleasure of the Board of
Directors:
|
Name
|
Age
|
Position
|
||
|
Earl
R. Refsland
|
67
|
Director,
President and Chief Executive Officer (1)
|
||
|
Eldon
P. Rosentrater
|
56
|
Vice
President of Administration & Corporate Planning
(2)
|
||
|
Robert
B. Harris
|
53
|
Vice
President of Operations (3)
|
||
|
Daniel
C. Dunn
|
50
|
Vice
President of Finance, Chief Financial Officer, Secretary &
Treasurer (4)
|
|
(1)
|
Mr.
Refsland has been Director, President and Chief Executive Officer of the
Company since September, 1999.
|
|
(2)
|
Mr.
Rosentrater has been Vice President-Administration/Corporate Planning of
the Company since March, 2003. He previously held the position of Vice
President — Operations from October 1999 to 2003. Prior to that time, Mr.
Rosentrater held the positions of Assistant to the President from 1998 to
1999; Director of Information Technologies from 1995 to 1998; Director of
Business Development from 1993 to 1995 and Group Product Manager from 1989
to 1993.
|
|
(3)
|
Mr.
Harris has been Vice President — Operations since July, 2006. He
previously held the positions for Command Medical Products, Inc. of Vice
President — Operations from January 2002 to January 2006 and Director of
Operations from October 1999 to December 2001. Prior to that time, Mr.
Harris held the position of Plant Manager for Sherwood Medical, a
subsidiary of Tyco Healthcare from 1997 to
1999.
|
8
|
(4)
|
Mr.
Dunn has been Vice President — Finance, Chief Financial Officer, Secretary
and Treasurer since July, 2001. He previously held the position of
Director of Finance at MetalTek International from 1998 to 2001. Prior to
that time, Mr. Dunn held the position of Corporate Controller at Allied
Healthcare Products, Inc. from 1994 to
1998.
|
The Company's business, operations and
financial condition are subject to various risks and uncertainties. You should
carefully consider the risks and uncertainties described below, together with
all of the other information in this annual report on Form 10-K and in the
company's other filings with the SEC, before making any investment decision with
respect to the company's securities. The risks and uncertainties described below
may not be the only ones the company faces. Additional risks and uncertainties
not presently known by the company or that the company currently deems
immaterial may also affect the company's business. If any of these known or
unknown risks or uncertainties actually occur or develop, the company's
business, financial condition, and results of operations could
change.
We participate in a highly competitive
environment.
The medical device industry is
characterized by rapid technological change, changing customer needs and
frequent new product introductions. Our products may be rendered obsolete as a result of future
innovations. We face intense competition from other
manufacturers. Some of our competitors may be larger than we are and may have greater financial, technical,
research, marketing, sales, distribution and other resources than we do. We believe that price competition will
continue among products developed in our markets. Our competitors may develop or
market technologies and
products that are more
effective or commercially attractive than any we are developing or
marketing. Our competitors may succeed in obtaining
regulatory approval and introducing or commercializing products before we
do. Such developments could have a
significant negative effect on our business, financial condition and results of
operations. Even if we are able to compete successfully, we
may not be able to do so in a profitable manner.
Decreased availability or increased
costs of raw materials could increase our costs of producing our products.
We purchase raw materials, fabricated
components and services
from a variety of suppliers. Raw materials such as brass and plastics are considered key raw materials.
We believe that our relationships with our suppliers are satisfactory and that
alternative sources of supply are readily available. From time to time, however, the prices and
availability of these raw materials fluctuate due to global market demands,
which could impair the company's ability to procure necessary materials, or
increase the cost of such materials. Inflationary and other increases
in costs of these raw
materials have occurred in the past and may recur from time to time. In addition, freight costs associated
with shipping and receiving product and sales are impacted by fluctuations in
the cost of oil and gas. A reduction in the supply or increase in the cost of those raw
materials could impact our ability to manufacture our products and could increase the cost of
production.
Changes
in third party reimbursement could negatively impact our revenues and
profitability.
The cost
of a majority of medical care in the United States is funded by the U.S.
Government through the Medicare and Medicaid programs and by private insurance
programs, such as corporate health insurance plans. Although we do
not receive payments for our products directly from these programs, home
respiratory care providers and durable medical equipment suppliers, who are the
primary customers for several of our products, depend heavily on payments from
Medicare, Medicaid and private insurers as a major source of
revenues. In addition, sales of certain of our products are affected
by the extent of hospital and health care facility construction and renovation
at any given time. The federal government indirectly funds a
significant percentage of such construction and renovation costs through
Medicare and Medicaid reimbursements. In recent years, governmentally
imposed limits on reimbursement to hospitals and other health care providers
have impacted spending for services, consumables and capital goods. A
material decrease from current reimbursement levels or a material change in the
method or basis of reimbursing health care providers is likely to adversely
affect future sales of our products.
9
Our success depends upon the development
of new products and product
enhancements, which entails considerable time and expense.
We place a high priority on the
development of new products to add to our product portfolio and on the
development of enhancements to our existing products. Product development
involves substantial expense and we cannot be certain that a completed
product will generate sufficient revenue for our
business to justify the resources that we devote to research and development
related to such product. The time and expense required to develop new products
and product enhancements is difficult to predict and we cannot assure you that we will succeed in
developing, introducing and marketing new products and product enhancements. Our
inability to successfully develop and introduce new or enhanced products on a
timely basis or at all, or to achieve market acceptance of such products, could materially impair
our business.
We are dependent on adequate protection
of our patent and proprietary rights.
We rely on patents, trade secrets,
trademarks, copyrights, know-how, license agreements and contractual provisions
to establish and protect
our intellectual property rights. However, these legal means afford us only
limited protection and may not adequately protect our rights or remedies to gain
or keep any advantages we may have over our competitors.
We cannot assure you that others may not independently develop
the same or similar technologies or otherwise obtain access to our technology
and trade secrets. Our competitors, many of which have substantial resources and
may make substantial investments in competing technologies, may apply for and obtain patents that
will prevent, limit, or interfere with our ability to manufacture or market our
products. Further, while we do not believe that any of our products or processes
interfere with the rights of others, third parties may nonetheless assert patent infringement
claims against us in the future.
Costly litigation may be necessary to
enforce patents issued to us, to protect trade secrets or “know-how” we own, to defend us against claimed
infringement of the rights of others or to determine the ownership, scope, or
validity of our proprietary rights and the rights of others.
Any claim of infringement against us may
involve significant liabilities to third parties, could require us to seek
licenses from third parties, and could prevent us from manufacturing, selling,
or using our products. The occurrence of this litigation or the effect of an
adverse determination in any of this type of litigation could have a material
adverse effect on our business, financial condition and results of operations.
Our business of manufacturing,
marketing, selling of medical devices involves the risk of liability claims and
such claims could seriously harm our business, particularly if our insurance
coverage is inadequate.
Our business exposes us to potential product liability claims
that are inherent in the testing, production, marketing and sale of medical
devices. Like other participants in the medical device market, we are from time
to time involved in lawsuits, claims and proceedings alleging product liability and related claims
such as negligence. If any current or future product liability claims become
substantial, our reputation could be damaged significantly, thereby harming our
business. We may be required to pay substantial damage awards as a result of any successful product
liability claims. Any product liability claim against us, whether with or
without merit, could result in costly litigation, and divert the time,
attention, and resources of our management.
As a result of our exposure to product liability claims, we
currently carry product liability insurance covering our products with policy
limits per occurrence and in the aggregate that we have deemed to be sufficient.
Our insurance may not cover certain product liability claims or our liability for any claims may exceed
our coverage limits. Therefore, we cannot predict whether this insurance is
sufficient, or if not, whether we will be able to obtain sufficient insurance to
cover the risks associated with our business or whether such insurance will be available at premiums
that are commercially reasonable. In addition, these insurance policies must be
renewed annually. Although we have been able to obtain liability insurance, such
insurance may not be available in the future on acceptable terms, if at all. A successful
claim against us or settlement by us with respect to uninsured liabilities or in
excess of our insurance coverage, or our inability to maintain insurance in the
future, or any claim that results in significant costs to or adverse publicity against us, could
have a material adverse effect on our business, financial condition and results
of operations.
10
We are subject to substantial domestic and
international government regulation, including regulatory quality standards
applicable to our manufacturing and quality processes.
Failure by us to comply with these standards could
have an adverse effect on our business, financial condition or
results of operations.
The FDA regulates the approval,
manufacturing, and sales and marketing of many of our products in the
U.S. Significant government regulation also exists in Canada, Japan,
Europe, and other countries in which we conduct business. As a device
manufacturer, we are required to register with the FDA
and are subject to periodic inspection by the FDA for compliance with the
FDA’s Quality System Regulation
(“QSR”) requirements, which require
manufacturers of medical devices to adhere to certain regulations,
including testing, quality control and
documentation procedures. In addition, the federal Medical Device Reporting
regulations require us to provide information to the FDA whenever there is
evidence that reasonably suggests that a device may have caused or
contributed to a death or serious injury or,
if a malfunction were to occur, could cause or contribute to a death or serious
injury. Compliance with applicable regulatory requirements is subject to
continual review and is rigorously monitored through periodic inspections by the FDA. In the European
Community, we are required to maintain certain ISO certifications in order to
sell our products and must undergo periodic inspections by notified bodies to
obtain and maintain these certifications. Failure to comply with current governmental regulations and
quality assurance guidelines could lead to temporary manufacturing shutdowns,
product recalls or related field actions, product shortages or delays in product
manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the
marketplace, and/or manufacturing quality issues with respect to our products
could lead to product recalls or related field actions, withdrawals, and/or
declining sales.
Our products may be subject to product
recalls even after
receiving FDA clearance or approval, which would harm our reputation and our
business.
The FDA and similar governmental
authorities in other countries in which our products are sold, have the
authority to request and, in some cases, require the recall of our products in the event of
material deficiencies or defects in design or manufacture. A government-mandated
or voluntary recall by us could occur as a result of component failures,
manufacturing errors or design defects. Any recall of product would divert managerial and financial
resources, harm our reputation with our customers and damage our
business.
We are exposed to certain credit risks,
resulting primarily from customer sales.
Substantially all of our receivables are
due from homecare providers, distributors, hospitals, and
contractors. Our customers are located throughout the U.S. and around
the world. We record an estimated allowance for uncollectible amounts
based primarily on our evaluation of the payment pattern, financial
condition, cash flows, and credit history of its
customers as well as current industry and economic conditions. Our inability to
collect on its trade accounts receivable could substantially reduce our income
and have a material adverse effect on its financial condition and results of
operations.
Our common stock is thinly traded and its
market price may fluctuate widely.
Our common stock is listed on the NASDAQ
Global Market but is thinly traded. As a result, you may not be able
to sell all of your shares of common stock on short
notice. Additionally, the market price of our common stock could
be subject to significant fluctuations in response to quarter-to-quarter
variation in our operating results, announcements of new products or services by
us or our competitors, and
other events or factors. For example, a shortfall in net sales or net income, or
an increase in losses could have an immediate and significant adverse effect on
the market price and volume fluctuations that have particularly affected the
market prices of many micro and small
capitalization companies and that have often been unrelated or disproportionate
to the operating performance of these companies. These fluctuations, as well as
general economic and market conditions, may adversely affect the market price for our common
stock.
11
If a natural or man-made disaster
strikes our manufacturing facilities, we may be unable to manufacture certain
products for a substantial amount of time and our revenue could
decline.
We have one principal manufacturing
operation. In the event that this facility, located in St. Louis,
Missouri, were severely damaged or destroyed as a result of a natural or
man-made disaster, we would be forced to relocate production to other
facilities and/or rely on third-party
manufacturers. Such an event could have a material adverse effect on our
business, results of operations and financial condition. Although we
have insurance for damage to our property and the interruption of our business,
this insurance may not be sufficient in scope
or amount to cover all of our potential losses and may not continue to be
available to us on acceptable terms, or at all.
Requirements associated with the
evaluation of internal controls required by Section 404 of the Sarbanes-Oxley Act of 2002 have
required and will require significant company resources and management
attention.
We are subject to the reporting requirements
of federal securities laws, including the Sarbanes-Oxley Act of 2002. Among
other requirements, the
Sarbanes-Oxley Act requires that we maintain effective disclosure controls
and procedures and internal control over financial reporting. We have, and expect to continue to, expend
significant management time and resources maintaining documentation and testing internal control over
financial reporting. While management's evaluation as of June 30,
2010 resulted in the
conclusion that our internal control over financial
reporting was effective as of that date, we cannot predict the outcome of testing
in future
periods. If we are not able to continue to comply
with the requirements of Section 404 in a timely manner, we could be subject to
scrutiny by regulatory authorities, such as the SEC or the NASDAQ Global Market, and the trading price of our
stock could decline.
Moreover, effective internal controls are necessary for us to produce reliable
financial reports and are important in helping us to prevent financial fraud. If
we cannot provide reliable financial reports or prevent fraud, our business and
operating results could be harmed,
investors could lose confidence in our reported financial information, and the
trading price of our stock could drop significantly.
If we are unable to hire or retain key
employees, it could have a negative impact on our business.
Our failure to attract and retain
skilled personnel could hinder the management of our business, our research and
development, our sales and marketing efforts, and our manufacturing
capabilities. However, there is no assurance that we will continue to
be able to hire or retain key employees. We compete to hire new
employees, and then must train them and develop their skills and
competencies. Our operating results could be adversely affected by
increased costs due to increased competition for employees, higher employee
turnover or increased employee benefit costs. Any unplanned turnover
could deplete our institutional knowledge base and erode our
competitive advantage.
The U.S. healthcare environment is
changing in many ways, some of which may not be favorable to us, as a result of
recent federal healthcare legislation.
Our products and services are primarily
intended to function within the current structure of the healthcare industry in
the United States. In recent years, the healthcare industry has undergone
significant changes designed to control costs. The use of managed care has
increased; Medicare and Medicaid reimbursement levels have declined;
distributors, manufacturers, healthcare providers have consolidated; and large,
sophisticated purchasing groups have become more prevalent.
In March 2010, Congress approved, and
the President signed into law, the Patient Protection and Affordable Care Act
and the Health Care and Education Reconciliation Act (collectively the
"Healthcare Reform Acts"). Among other things, the Healthcare Reform Acts seek
to expand health insurance coverage to approximately 32 million uninsured
Americans. Many of the significant changes in the Healthcare Reform Acts do not
take effect until 2014, including a requirement that most Americans carry health
insurance. We expect expansion of access to health insurance to increase the
demand for our products and services, but other provisions of the Healthcare
Reform Acts could affect us adversely. The Healthcare Reform Acts contain many
provisions designed to generate the revenues necessary to fund the coverage
expansions and to reduce costs of Medicare and Medicaid. Beginning in 2013, each
medical device manufacturer will have to pay a tax in an amount equal to 2.3% of
the price for which the manufacturer sells its medical devices. We manufacture
and sell devices that will likely be subject to this tax. We could be
adversely affected by, among other things, changes in the delivery or pricing of
or reimbursement for medical devices.
12
Not applicable.
The Company’s headquarters are located
in St. Louis, Missouri and the Company maintains manufacturing facilities in
Missouri and New York. Set forth below is certain information with
respect to the Company’s manufacturing facilities at June 30,
2010.
|
Location
|
Square
Footage
(Approximate)
|
Owned/
Leased
|
Activities/Products
|
|||
|
St.
Louis, Missouri
|
242,000
|
Owned
|
Headquarters;
medical gas equipment; respiratory care products; emergency medical
products
|
|||
|
Stuyvesant
Falls, New York
|
30,000
|
Owned
|
CO2
absorbent
|
In addition, the Company owns a
16.8-acre parcel of undeveloped land in Stuyvesant Falls, New York.
Product liability lawsuits are filed
against the Company from time to time for various injuries alleged to have
resulted from defects in the manufacture and/or design of the Company’s
products. Any such proceedings that are currently pending are not
expected to have a material adverse effect on the Company. The
Company maintains comprehensive general liability insurance coverage which it
believes to be adequate for the continued operation of its business, including
coverage of product liability claims.
In
addition, from time to time the Company’s products may be subject to product
recalls in order to correct design or manufacturing flaws in such
products. The Company intends to continue to conduct business in such
a manner as to avert any FDA action seeking to interrupt or suspend
manufacturing or require any recall or modification of products.
None
Allied
Healthcare Products, Inc. trades on the NASDAQ Global Market under the symbol
AHPI. As of
September 10, 2010, there were 167 record owners of the Company’s Common
Stock. The following tables summarize information with respect
to the high and low closing prices for the Company’s Common Stock as listed on
the NASDAQ Global market for each quarter of fiscal 2010 and 2009,
respectively. The Company currently does not pay, and in the most
recent fiscal years has not paid, any dividend on its Common
Stock.
13
Common
Stock Information
|
2010
|
High
|
Low
|
2009
|
High
|
Low
|
||||||||||||
|
September
quarter
|
$ | 5.14 | $ | 3.51 |
September
quarter
|
$ | 7.00 | $ | 5.00 | ||||||||
|
December
quarter
|
$ | 6.89 | $ | 4.75 |
December
quarter
|
$ | 6.19 | $ | 2.85 | ||||||||
|
March
quarter
|
$ | 5.26 | $ | 3.58 |
March
quarter
|
$ | 4.50 | $ | 2.83 | ||||||||
|
June
quarter
|
$ | 3.98 | $ | 3.55 |
June
quarter
|
$ | 5.68 | $ | 3.00 | ||||||||
Information concerning securities
authorized for issuance under equity compensation plans is incorporated by
reference to the Company’s proxy statement for the 2010 annual meeting of
shareholders.
|
(In thousands, except per share
data)
|
||||||||||||||||||||
|
Year ended June
30,
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Consolidated Statement of
Operations Data
|
||||||||||||||||||||
|
Net sales
|
$ | 46,034 | $ | 52,073 | $ | 56,364 | $ | 56,501 | $ | 57,546 | ||||||||||
|
Cost of
sales
|
34,945 | 40,273 | 43,006 | 42,028 | 43,293 | |||||||||||||||
|
Gross
profit
|
11,089 | 11,800 | 13,358 | 14,473 | 14,253 | |||||||||||||||
|
Impairment of goodwill
(2)
|
- | 15,980 | - | - | - | |||||||||||||||
|
Selling, general and
administrative expenses
|
11,872 | 13,042 | 12,085 | 12,052 | 12,113 | |||||||||||||||
|
Income (loss) from
operations
|
(783 | ) | (17,222 | ) | 1,273 | 2,421 | 2,140 | |||||||||||||
|
Interest
expense
|
4 | - | 20 | - | - | |||||||||||||||
|
Interest
income
|
(10 | ) | (60 | ) | (138 | ) | (111 | ) | (53 | ) | ||||||||||
|
Other, net
|
117 | 50 | 60 | (24 | ) | 37 | ||||||||||||||
|
Income (loss) before provision for
(benefit from) income taxes
|
(894 | ) | (17,212 | ) | 1,331 | 2,556 | 2,156 | |||||||||||||
|
Provision for (benefit from)
income taxes (1)
|
(294 | ) | (450 | ) | 449 | 914 | 507 | |||||||||||||
|
Net income
(loss)
|
$ | (600 | ) | $ | (16,762 | ) | $ | 882 | $ | 1,642 | $ | 1,649 | ||||||||
|
Basic earnings (loss) per
share
|
$ | (0.07 | ) | $ | (2.12 | ) | $ | 0.11 | $ | 0.21 | $ | 0.21 | ||||||||
|
Diluted earnings (loss) per
share
|
$ | (0.07 | ) | $ | (2.12 | ) | $ | 0.11 | $ | 0.20 | $ | 0.20 | ||||||||
|
Basic weighted average common
shares outstanding
|
8,067 | 7,899 | 7,884 | 7,876 | 7,841 | |||||||||||||||
|
Diluted weighted average common
shares outstanding
|
8,067 | 7,899 | 8,120 | 8,085 | 8,066 | |||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
|
June 30,
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Consolidated Balance Sheet
Data
|
||||||||||||||||||||
|
Working
capital
|
$ | 17,627 | $ | 16,987 | $ | 18,291 | $ | 17,269 | $ | 14,644 | ||||||||||
|
Total
assets
|
32,931 | 33,234 | 52,258 | 51,318 | 49,330 | |||||||||||||||
|
Stockholders'
equity
|
26,819 | 26,685 | 43,339 | 42,485 | 40,660 | |||||||||||||||
|
(1)
|
See
Note 5 to the June 30, 2010 Consolidated Financial Statements for further
discussion of the Company's effective tax
rate.
|
|
(2)
|
See
Note 13 to the June 30, 2010 Consolidated Financial Statements for further
discussion.
|
14
Results
of Operations
The
Company manufactures and markets respiratory products, including respiratory
care products, medical gas equipment and emergency medical
products. Set forth below is certain information with respect to
amounts and percentages of net sales attributable to respiratory care products,
medical gas equipment and emergency medical products for the fiscal years ended
June 30, 2010, 2009, and 2008.
|
Year ended June
30,
|
Dollars in
thousands
|
|||||||
|
2010
|
||||||||
|
Net
|
% of Total
|
|||||||
|
Sales
|
Net Sales
|
|||||||
|
Respiratory care
products
|
$ | 11,921 | 25.9 | % | ||||
|
Medical gas
equipment
|
23,762 | 51.6 | % | |||||
|
Emergency medical
products
|
10,351 | 22.5 | % | |||||
|
Total
|
$ | 46,034 | 100.0 | % | ||||
|
Dollars in
thousands
|
||||||||
|
Year ended June
30,
|
2009
|
|||||||
|
Net
|
% of Total
|
|||||||
|
Sales
|
Net Sales
|
|||||||
|
Respiratory care
products
|
$ | 12,303 | 23.6 | % | ||||
|
Medical gas
equipment
|
29,656 | 57.0 | % | |||||
|
Emergency medical
products
|
10,114 | 19.4 | % | |||||
|
Total
|
$ | 52,073 | 100.0 | % | ||||
|
Dollars in
thousands
|
||||||||
|
Year ended June
30,
|
2008
|
|||||||
|
Net
|
% of Total
|
|||||||
|
Sales
|
Net Sales
|
|||||||
|
Respiratory care
products
|
$ | 14,248 | 25.3 | % | ||||
|
Medical gas
equipment
|
30,744 | 54.5 | % | |||||
|
Emergency medical
products
|
11,372 | 20.2 | % | |||||
|
Total
|
$ | 56,364 | 100.0 | % | ||||
The
following table sets forth, for the fiscal periods indicated, the percentage of
net sales represented by the various income and expense categories reflected in
the Company’s consolidated statement of operations.
15
|
Year ended June
30,
|
2010
|
2009
|
2008
|
|||||||||
|
Net sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost of
sales
|
75.9 | 77.3 | 76.3 | |||||||||
|
Gross
profit
|
24.1 | 22.7 | 23.7 | |||||||||
|
Selling, general and
administrative expenses
|
25.8 | 25.0 | 21.4 | |||||||||
|
Impairment of
goodwill
|
— | 30.7 | — | |||||||||
|
Income (loss) from
operations
|
(1.7 | ) | (33.1 | ) | 2.3 | |||||||
|
Interest
income
|
0.0 | 0.1 | 0.2 | |||||||||
|
Other, net
|
0.2 | 0.1 | 0.1 | |||||||||
|
Income (loss) before provision for
(benefit from) income taxes
|
(1.9 | ) | (33.1 | ) | 2.4 | |||||||
|
Provision for (benefit from)
income taxes
|
(0.6 | ) | (0.9 | ) | 0.8 | |||||||
|
Net income
(loss)
|
(1.3 | )% | (32.2 | )% | 1.6 | % | ||||||
Critical
Accounting Policies
In
preparing financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company evaluates estimates and judgments on an
ongoing basis, including those related to bad debts, inventory valuations,
property, plant and equipment, intangible assets, income taxes, and
contingencies and litigation. Estimates and judgments are based on
historical experience and on various other factors that may be reasonable under
the circumstances. Actual results may differ from these
estimates. The following areas are considered to be the Company’s
most significant accounting policies:
Revenue
recognition:
Revenue
is recognized for all sales, including sales to agents and distributors, at the
time products are shipped and title has transferred, provided that a purchase
order has been received or a contract executed, there are not uncertainties
regarding customer acceptance, the sales price is fixed and determinable and
collectability is reasonably assured. Sales discounts, returns and
allowances are included in net sales, and the provision for doubtful accounts is
included in selling, general and administrative expenses. Net sales
do not include sales tax. Additionally, it is the Company’s practice
to include revenues generated from freight billed to customers in net sales with
corresponding freight expense included in cost of sales in the consolidated
statement of operations.
The sales
price is fixed by the Company’s acceptance of the buyer’s firm purchase order.
The sales price is not contingent, or subject to additional
discounts. The Company’s standard shipment terms are “F.O.B. shipping
point” as stated in the Company’s Terms and Conditions of Sale. The
customer is responsible for obtaining insurance for and bears the risk of loss
for product in-transit. Additionally, sales to customers do not
include the right to return merchandise without the prior consent of the
Company. In those cases where returns are accepted, product must be
current and restocking fees must be paid by the respective
customer. A provision has been made for estimated sales returns and
allowances. These estimates are based on historical analysis of
credit memo data and returns.
The
Company does not provide installation services for its products. Most
products shipped are ready for immediate use by the customer. The
Company’s in-wall medical system components, central station pumps and
compressors, and headwalls do require installation by the
customer. These products are typically purchased by a third-party
contractor who is ultimately responsible for installation
services. Accordingly, the customer purchase order or contract does
not require customer acceptance of the installation prior to completion of the
sale transaction and revenue recognition. The Company’s
standard payment terms are net 30 days from the date of shipment, and payment is
specifically not subject to customer inspection or acceptance, as stated in the
Company’s Terms and Conditions of Sale. The buyer becomes obligated
to pay the Company at the time of shipment. The Company requires
credit applications from its customers and performs credit reviews to determine
the creditworthiness of new customers. The Company requires letters
of credit, where warranted, for international transactions. The
Company also protects its legal rights under mechanics lien laws when selling to
contractors.
16
The
Company does offer limited warranties on its products. The standard
warranty period is one year. The Company’s cost of providing warranty
service for its products for the years ended June 30, 2010, June 30, 2009, and
June 30, 2008 was $135,032, $166,651, and $62,954, respectively. The
related liability for warranty service amounted to $95,547 and $104,157 at June
30, 2010 and 2009, respectively.
Inventory
reserve for obsolete and excess inventory:
Inventory
is recorded net of a reserve for obsolete and excess inventory which is
determined based on an analysis of inventory items with no usage in the
preceding year and for inventory items for which there is greater than two
years’ usage on hand. This analysis considers those identified
inventory items to determine, in management’s best estimate, if parts can be
used beyond one year, if there are alternate uses or at what values such parts
may be disposed for. At June 30, 2010 and 2009, inventory is recorded
net of a reserve for obsolete and excess inventory of $1.5 million and $1.3
million, respectively.
Income
taxes:
The
Company accounts for income taxes under ASC Topic 740: “Income
Taxes.” Under ASC 740, the deferred tax provision is determined using
the liability method, whereby deferred tax assets and liabilities are recognized
based upon temporary differences between the financial statement and income tax
bases of assets and liabilities using presently enacted tax
rates. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
Accounts
receivable net of allowances:
Accounts
receivable are recorded net of an allowance for doubtful accounts, which is
determined based on an analysis of past due accounts including accounts placed
with collection agencies, and an allowance for returns and credits, which is
based on historical analysis of credit memo data and returns. At June
30, 2010 and 2009, accounts receivable is recorded net of allowances of $0.3
million.
Goodwill:
As a
result of our 2009 annual impairment review, we concluded that the carrying
value of our goodwill was impaired. As a result, our fourth quarter
and full year 2009 financial results included an aggregate non-cash pretax
impairment charge of approximately $16.0 million. The impairment
charge was the result of the annual assessment for impairment and reflected
factors impacted by market conditions and the completion of our annual budget
process. This non-cash charge had no effect on our cash balances or
cash flows.
Valuation
of Long-Lived Assets:
The
impairment of tangible and intangible assets is assessed when changes in
circumstances (such as, but not limited to, a decrease in market value of an
asset, current and historical operating losses or a change in business strategy)
indicate that their carrying value may not be recoverable. This
assessment is based on management’s expectations and judgments regarding future
business and economic conditions, future market values and disposal
costs. Actual results and events could differ significantly from
management’s estimates. Based upon our most recent analysis, we
believe that no impairment exists at June 30, 2010. There can be no
assurance that future impairment tests will not result in a charge to net
earnings (loss).
17
Self-insurance:
The
Company maintains a self-insurance program for a portion of its health care
costs. Self-insurance costs are accrued based upon the aggregate of
the liability for reported claims and the estimated liability for claims
incurred but not reported. As of June 30, 2010 and 2009, the Company
had $300,000 and $395,000, respectively, of accrued liabilities related to
health care claims. In order to establish the self-insurance
reserves, the Company utilized actuarial estimates of expected claims based on
analyses of historical data.
Share
Based Compensation:
We
calculate share based compensation using the Black-Sholes-Merton
(“Black-Scholes”) option-pricing model, which requires the input of highly
subjective assumptions including the expected stock price
volatility. For the twelve-month periods ended June 30, 2010, 2009,
and 2008, we recorded $648,000, $27,000 and $77,000, respectively, in
share-based employee compensation. This compensation cost is included
in the general and administrative expenses and cost of sales in the accompanying
consolidated income statements.
Significant
Factors Affecting Past and Future Operating Results
On August
27, 2004, the Company entered into an agreement with Abbott Laboratories
(“Abbott”) pursuant to which Allied agreed to cease production of its product
Baralyme®, and to effect the withdrawal of Baralyme® product held by
distributors. The agreement permits Allied to pursue the development of a new
carbon dioxide absorbent product. Baralyme®, a carbon dioxide
absorbent product, has been used safely and effectively in connection with
inhalation anesthetics since its introduction in the 1920s. In recent
years, the number of inhalation anesthetics has increased, giving rise to
concerns regarding the use of Baralyme® in conjunction with these newer
inhalation anesthetics if Baralyme® has been allowed, contrary to recommended
practice, to become desiccated. The agreement also provides that, for a period
of eight years, Allied will not manufacture, distribute, promote, market, sell,
commercialize or donate any Baralyme® product or similar product based upon
potassium hydroxide and will not develop or license any new carbon dioxide
absorbent product containing potassium hydroxide.
In
consideration of the foregoing, Abbott agreed to pay Allied an aggregate of
$5,250,000 of which $1,530,000 was paid on September 30, 2004 and the remainder
payable in four equal annual installments of $930,000 due on July 1, 2005
through July 1, 2008. The last installment due on July 1, 2008 was
received by Allied on June 19, 2008.
The
payments received from Abbott are being recognized into income, as net sales,
over the eight-year term of the agreement. Allied has no further
obligations under this agreement which would require the Company to repay these
amounts or otherwise impact this accounting treatment. During the
year ended June 30, 2010, $688,200 was recognized into income as net
sales.
A
reconciliation of deferred revenue resulting from the agreement with Abbott,
with the amounts received under the agreement, and amounts recognized as net
sales for fiscal years 2010 and 2009 is as follows:
18
|
Twelve Months ended
|
||||||||
|
June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Beginning
balance
|
$ | 2,179,300 | $ | 2,867,500 | ||||
|
Revenue recognized as net
sales
|
(688,200 | ) | (688,200 | ) | ||||
| 1,491,100 | 2,179,300 | |||||||
|
Less - Current portion of deferred
revenue
|
(688,200 | ) | (688,200 | ) | ||||
| $ | 802,900 | $ | 1,491,100 | |||||
In 2004,
Allied’s sales of Baralyme® were approximately $2.0 million and contributed
approximately $0.6 million in pre-tax earnings and cash flow from
operations. The majority of the $5,250,000 Allied has received from
Abbott will be recognized into income over the eight-year term of the
agreement. The net cash flow realized by Allied under the agreement
with Abbott is substantially equivalent to the net cash flow Allied would have
expected to realize from continued manufacture and sales of Baralyme® during the
initial five years of the period.
Fiscal
2010 Compared to Fiscal 2009
The
Company had a loss of $0.9 million before taxes for fiscal 2010, compared to a
loss of $17.2 million before taxes for fiscal 2009. The Company
recorded an income tax benefit of $0.3 million in fiscal 2010, compared to an
income tax benefit of $0.4 million in fiscal 2009. The 2009 tax
benefit was not affected due to the non-deductibility of the goodwill impairment
charge for federal income tax purposes.
For
further discussion of the Company’s income tax calculation please refer to Note
5 of the “Notes to Consolidated Financial Statements” section included in this
Form 10-K.
Financial
results for fiscal 2009 were adversely impacted by the write down of $16.0
million in goodwill. The write down resulted from the required annual
impairment review of goodwill at June 30, 2009, which took into consideration
the declining economic environment and declining profitability. For
further discussion of the Company’s goodwill impairment calculation please refer
to Note 13 of the “Notes to Consolidated Financial Statements” section included
in this Form 10-K.
Net sales
for fiscal 2010 of $46.0 million were $6.1 million or 11.7% less than net sales
of $52.1 million in fiscal 2009. Domestically, sales decreased by
$4.6 million dollars. Internationally, sales decreased by $1.5
million. International business is dependent upon hospital
construction projects, and the development of medical facilities in those
regions in which the Company operates. Domestic sales for fiscal 2010
include approximately $0.7 million for the recognition into sales of payments
resulting from the
agreement with Abbott Laboratories, as discussed below. For 2009,
domestic sales included approximately $0.8 million for the recognition into
sales of payments resulting from the agreement with Abbott
Laboratories.
The
Company continues to believe that the decrease in net sales for the year is
primarily the result of the worldwide recession. By and large, the
Company’s products are considered durable goods. The Company believes
that the purchase of equipment and durable goods and the purchase of equipment
by hospitals and municipalities have been cut radically as a short term measure
to meet budgets and conserve cash. Orders for the Company’s products
for the year ended June 30, 2010 of $44.9 million were $4.6 million or 9.3%
lower than orders for the year ended June 30, 2009 of $49.5 million. Customer
purchase order releases for the year ended June 30, 2010 of $44.0 million were
$5.6 million or 11.3% lower than customer purchase order releases of $49.6
million from the prior fiscal year.
19
As in
2009, sales for the year ended June 30, 2010 included $0.7 million for the
recognition into sales of payments resulting from the agreement with Abbott
Laboratories to cease production and distribution of Baralyme®.
Sales
for the year ended June 30, 2009 also included recognition as sales of $0.1
million in reimbursement by Abbott Laboratories in product development cost to
pursue development of new carbon dioxide absorption product as a result of the
agreement to cease production and distribution of Baralyme®. In
total, domestic sales for 2009 included approximately $0.8 million for
recognition into sales of payments resulting from the agreement with Abbott
Laboratories.
Allied
continues to sell Carbolime®, a carbon dioxide absorbent with a different
formulation than Baralyme®. For the year ended June 30, 2010 the
Company had carbon dioxide absorbent sales of Carbolime® of $1.7 million
dollars, compared with $1.8 million for the year ended June 30,
2009. Allied has recently introduced a new premium carbon dioxide
absorbent, Litholyme®, with a new formulation. There were no
sales of Litholyme® for the year ended June 30th,
2010.
Respiratory
care products sales in fiscal 2010 of $11.9 million were $0.4 million, or 3.3%
lower than sales of $12.3 million in the prior year. Included in the sales for
respiratory care products is an approximately $0.1 million decrease in the
amount recognized resulting from the agreement to cease the production and
distribution of Baralyme®. The amount recognized as sales decreased to
approximately $0.7 million or $0.1 million less than in the prior
year. Respiratory care products also include the Company’s efforts in
the homecare market. The Company continues to develop systems and personnel to
improve our sales and marketing efforts and continues to emphasize measures to
reduce cost.
Medical
gas equipment sales, which include construction products, of $23.8 million in
fiscal 2010 were $5.9 million, or 19.9% lower than prior year levels of $29.7
million. Internationally, sales of medical gas equipment in fiscal
2010 were $1.6 million less than in the prior year. The remainder of
the decrease in sales, of $4.3 million, took place in the domestic
market. The Company does not believe this decrease in sales
represents a loss of market share, but a result of lower total demand
and full-year impact of the recession.
Emergency
medical product sales in fiscal 2010 of $10.4 million were $0.3 million or 3.0%
higher than fiscal 2009 sales of $10.1 million. International sales
of Emergency medical products increased by $0.1 million from the prior year
while domestic sales increased by $0.2 million. Also, orders for the Company’s
Emergency Products were $0.3 million higher than the prior year. The
Company believes that demand for these products, which are largely consumed by
local agencies, continues to be impacted by economic conditions as states and
municipalities continued to struggle with decreased tax revenues.
International
sales, which are included in the product lines discussed above, decreased $1.5
million, or 14.9%, to $8.6 million in fiscal 2010 compared to sales of $10.1
million in fiscal 2009. As discussed above, the Company’s
international shipments are dependent on hospital construction projects and the
expansion of medical care in those regions. In fiscal 2010,
international shipments of medical gas equipment, including construction
products, decreased by $1.6 million dollars. This decrease was partially offset
by an increase of $66,000 in the sale of emergency care products and by a
$116,000 increase in the sale of respiratory care products. The Company
believes sales declines are the result of the current recession
worldwide.
Gross
profit in fiscal 2010 was $11.1 million, or 24.1% of sales, compared to a gross
profit of $11.8 million, or 22.6% of sales in fiscal 2009. Lower
production levels result in less effective utilization of the Company’s
manufacturing capacity and the fixed expenses associated with that
capacity. However, this impact was more than offset by initiatives to
lower the cost of production through process change and lower cost acquisition
of certain purchased components and finished goods. The Company
continues to review the cost of production and seek opportunities to lower those
costs.
20
The
Company invested $0.3 million in capital expenditures in fiscal 2010, $1.5
million in fiscal 2009, and $1.1 million in fiscal 2008 for manufacturing
equipment and computer systems, which continue to decrease production costs and
improve efficiencies for several product lines. The Company continues
to control cost and actively pursue methods to reduce its costs through
automation.
Selling,
General, and Administrative (“SG&A”) expenses for fiscal 2010 were $11.9
million, compared to SG&A expenses of $13.0 million in fiscal
2009. Stock option expense increased approximately $0.6 million due
to the grant of immediately vested stock options to the Company’s President and
CEO. The Company reduced expenses in almost all other areas of
SG&A, including compensation, professional services and recruiting
expenses. Due to the low level of sales for fiscal 2010, sales
commissions decreased $0.3 million. Additionally, selling expenses
for business travel decreased approximately $235,000, expenses for trade shows
decreased approximately $134,000, expenses for supplies decreased approximately
$60,000 and vehicle expenses decreased approximately $40,000.
Interest
income in fiscal 2010 was $10,000 compared to interest income of $60,000 in
fiscal 2009 due to lower average cash balances and lower interest
rates.
Net loss
in fiscal 2010 was $0.6 million or $0.07 per basic and diluted earnings per
share, down from a net loss of $16.8 million, or $2.12 per basic and diluted
earnings per share in fiscal 2009. In 2010, the weighted number of
shares used in the calculation of basic and diluted earnings per share was
8,066,740. In 2009, the weighted number of shares used in the
calculation of basic earnings per share was 7,898,782.
Fiscal
2009 Compared to Fiscal 2008
The
Company had a loss of $17.2 million before taxes for fiscal 2009, compared to
income of $1.3 million before taxes for fiscal 2008. The Company
recorded an income tax benefit of $0.4 million in fiscal 2009, compared to an
income tax provision of $0.4 million in fiscal 2008. The 2009 tax
benefit was not affected due to the non-deductibility of the goodwill impairment
charge for federal income tax purposes.
For
further discussion of the Company’s income tax calculation please refer to Note
5 of the “Notes to Consolidated Financial Statements” section included in this
Form 10-K.
Financial
results for fiscal 2009 were adversely impacted by the write down of $16.0
million in goodwill. The write down resulted from the required annual
impairment review of its goodwill at June 30, 2009, which took into
consideration the declining economic environment and declining
profitability. For further discussion of the Company’s goodwill
impairment calculation please refer to the “Critical Accounting Polices –
Goodwill” section above.
Net sales
for fiscal 2009 of $52.1 million were $4.3 million or 7.6% less than net sales
of $56.4 million in fiscal 2008. Domestically, sales decreased by
$3.7 million dollars. Internationally, sales decreased by $0.6
million. International business is dependent upon hospital
construction projects, and the development of medical facilities in those
regions in which the Company operates. Domestic sales for fiscal 2009
include approximately $0.8 million for the recognition into sales of payments
resulting from the
agreement with Abbott Laboratories, as discussed below. For 2008,
domestic sales included approximately $1.7 million for the recognition into
sales of payments resulting from the agreement with Abbott
Laboratories.
The
decrease in net sales for the year is primarily the result of the worldwide
recession. By and large, the Company’s products are considered durable
goods. The Company believes that the purchase of equipment and
durable goods and the purchase of equipment by hospitals and municipalities have
been cut radically as a short term measure to meet budgets and conserve
cash. Orders for the Company’s products for the year ended June 30,
2009 of $49.5 million were $4.9 million or 9.0% lower than orders for the year
ended June 30, 2008 of $54.4 million. Customer purchase order releases for the
year ended June 30, 2009 of $49.6 million were $4.2 million or 7.8% lower than
customer purchase order releases of $53.8 million from the prior fiscal
year.
21
Sales for
the year ended June 30, 2009 included $688,000 for the recognition into sales of
payments resulting from the agreement with Abbott Laboratories to cease
production and distribution of Baralyme®. Sales for the year ended
June 30, 2009 also included recognition as sales of $99,000 in reimbursement by
Abbott Laboratories in product development cost to pursue development of new
carbon dioxide absorption product as a result of the agreement to cease
production and distribution of Baralyme®. In total, domestic sales
for 2009 included approximately $787,000 for recognition into sales of payments
resulting from the agreement with Abbott Laboratories.
By
comparison, sales for the year ended June 30, 2008 included $465,000 for the
recognition into sales of payments resulting from the agreement with Abbott
Laboratories to cease production and distribution of Baralyme® and $1,196,000 in
reimbursement by Abbott Laboratories in product development cost to pursue
development of new carbon dioxide absorption product to replace
Baralyme®.
Allied
continues to sell Carbolime®, a carbon dioxide absorbent with a different
formulation than Baralyme®. For the year ended June 30, 2009 the
Company had carbon dioxide absorbent sales of Carbolime®, of $1.8 million
dollars, compared with $1.9 million for the year ended June 30,
2008.
Respiratory
care products sales in fiscal 2009 of $12.3 million were $1.9 million, or 13.4%
lower than sales of $14.2 million in the prior year. Included in the sales for
respiratory care products is an approximately $1.0 million decrease in the
amount recognized resulting from the agreement to cease the production and
distribution of Baralyme®. The amount recognized as sales decreased to
approximately $0.7 million or $1.0 million less than in the prior
year. Respiratory care products also include the Company’s efforts in
the homecare market. The Company continues to develop systems and personnel to
improve our sales and marketing efforts, has increased inventory levels and
continues to emphasize measures to reduce cost.
Medical
gas equipment sales, which include construction products, of $29.7 million in
fiscal 2009 were $1.0 million, or 3.3% lower than prior year levels of $30.7
million. Internationally, sales of Medical gas equipment in fiscal
2009 were $0.8 million less than in the prior year. The remainder of
the decrease in sales, of $0.2 million, took place in the domestic
market. The Company does not believe this decrease in sales
represents a loss of market share.
Emergency
medical product sales in fiscal 2009 of $10.1 million were $1.3 million or 11.4%
lower than fiscal 2008 sales of $11.4 million. International sales of
emergency medical products were unchanged from the prior year while domestic
sales decreased by $1.3 million. Also, orders for the Company’s emergency
products were $1.2 million lower than the prior year. The Company
believes that demand for these products, which are largely consumed by local
agencies, was impacted by economic conditions as states and municipalities
struggled with decreased tax revenues.
International
sales, which are included in the product lines discussed above, decreased $0.7
million, or 6.5%, to $10.1 million in fiscal 2009 compared to sales of $10.8
million in fiscal 2008. As discussed above, the Company’s
international shipments are dependent on hospital construction projects and the
expansion of medical care in those regions. In fiscal 2009,
international shipments of medical gas equipment, including construction
products, decreased by $0.8 million dollars. This decrease was partially offset
by an increase of $48,000 in the sale of emergency care products and by a
$142,000 increase in the sale of respiratory care products. The Company
believes order declines in South America and Southeast Asia, and other regions
are the result of the current recession.
Gross
profit in fiscal 2009 was $11.8 million, or 22.6% of sales, compared to a gross
profit of $13.4 million, or 23.7% of sales in fiscal 2008. Lower
production levels result in less effective utilization of the Company’s
manufacturing capacity and the fixed expenses associated with that
capacity. In addition, the cost of providing medical coverage to its
employees increased approximately $0.3 million in fiscal 2009 over fiscal 2008.
Cost of sales for the year ended June 30, 2009 includes approximately $0.1
million in cost incurred in product development cost to pursue development of a
new carbon dioxide absorption product as a result of the agreement with Abbott
Laboratories to cease production and distribution of Baralyme®. Cost
of sales for the year ended June 30, 2008 includes approximately $0.6 million in
cost incurred in product development cost to pursue development of a new carbon
dioxide absorption product.
22
The
Company invested $1.5 million in capital expenditures in fiscal 2009, $1.1
million in fiscal 2008, and $0.6 million in fiscal 2007 for manufacturing
equipment and computer systems, which continue to decrease production costs and
improve efficiencies for several product lines. The Company continues
to control cost and actively pursue methods to reduce its costs.
SG&A
expenses for fiscal 2009 were $13.0 million, compared to SG&A expenses of
$12.1 million in fiscal 2008. Salaries and benefits increased by $0.8
million from the prior year primarily due to open employee positions in the
prior fiscal year and normal increases in the cost of fringe
benefits. There have not been changes in staffing levels over the
prior year. Also, outside services increased approximately $0.1
million primarily for the testing of the Company’s new EPV100 and MCV
ventilators designed to meet the needs of the mass casualty and pandemic
markets. Additionally, legal expenses increased by approximately $0.1
million, as a result of product liability claims. Selling, general
and administrative expenses also include approximately $0.2 million in product
development cost for the new carbon dioxide absorption product being
developed. In the prior year all development cost for this product
were reimbursed. These increases have been partially offset by a $0.1
million decrease in recruiting expenses and a $0.1 million decrease in auditing
and accounting professional fees from the prior year as a result of the IRS
examination of the Company’s U.S. income tax returns for the fiscal years ended
June 30, 2005 and 2006, which occurred during fiscal year 2008.
Interest
income in fiscal 2009 was $60,000 compared to interest income of $138,000 in
fiscal 2008.
Net loss
in fiscal 2009 was $16.8 million or $2.12 per basic and diluted earnings per
share, down from net income of $0.9 million, or $0.11 per basic and diluted
earnings per share in fiscal 2008. In 2009, the weighted number of
shares used in the calculation of basic and diluted earnings per share was
7,898,782. In 2008, the weighted number of shares used in the
calculation of basic earnings per share was 7,883,659 and the weighted number of
shares used in the calculation of diluted earnings per share was
8,119,776.
Financial
Condition, Liquidity and Capital Resources
The following table sets forth selected
information concerning Allied's financial condition at June 30:
|
Dollars in thousands
|
2010
|
2009
|
2008
|
|||||||||
|
Cash
& cash equivalents
|
$ | 5,263 | $ | 1,943 | $ | 6,149 | ||||||
|
Working
Capital
|
$ | 17,627 | $ | 16,987 | $ | 18,291 | ||||||
|
Total
Debt
|
$ | - | $ | - | $ | - | ||||||
|
Current
Ratio
|
4.32:1
|
4.36:1
|
3.71:1
|
|||||||||
The
Company’s working capital was $17.6 million at June 30, 2010 compared to $17.0
million at June 30, 2009. Cash increased $3.3 million and accrued
liabilities decreased by $0.1 million. During fiscal 2010, these
increases in working capital were offset by a $0.3 million increase in accounts
payable and a decrease of $1.5 million in inventories. Also, income
tax receivable decreased $0.1 million and other current assets decreased $0.1
million. Accounts receivable decreased to $5.4 million at June 30,
2010, down $0.8 million from $6.2 million at June 30, 2009. Accounts
receivable as measured in days sales outstanding (“DSO”) decreased to 40 DSO,
down from 43 DSO in the prior year.
The net
increase in cash for the fiscal year ended June 30, 2010 was $3.3
million. The net decrease in cash for the fiscal year ended June 30,
2009 was $4.2 million. Net cash provided by operating activities was
$3.5 million for fiscal 2010 compared to net cash used in operating activities
of $2.7 for fiscal 2009. The increase in cash flows from operations
in fiscal 2010 is due primarily to decreases in inventory. The
decrease in inventory is due to the decrease in sales, as the lower level of
sales can be supported with less inventory.
Cash
flows used in operating activities for the fiscal year ended June 30, 2009
consisted of a net loss of $16.8 million, supplemented by $1.3 million in
non-cash charges to operations for amortization and depreciation. The
net loss was also offset by a $16.0 million non-cash charge to operations for
the impairment of goodwill. Cash was used to make capital
expenditures of $1.5 million.
23
Effective
as of November 13, 2009, Allied Healthcare Products, Inc. (the “Company”)
terminated its revolving credit facility arrangement with Bank of America, N.A.,
as successor to LaSalle Bank National Association (the “Old Credit Agreement”).
The Old Credit Agreement provided for borrowings of up to $10,000,000 and was
available through September 1, 2010. No loans were outstanding under the
Old Credit Agreement as of November 13, 2009.
On
November 17, 2009, in order to obtain replacement financing, the Company
entered into a Loan and Security Agreement by and between Enterprise Bank &
Trust and the Company (the “New Credit Agreement”) pursuant to which the Company
obtained a secured revolving credit facility with borrowing availability of up
to $7,500,000 (the “New Credit Facility”). The Company’s obligations under the
New Credit Facility are secured by certain assets of the Company, including all
inventories and accounts receivable of the Company. The Company also paid a
closing fee of $20,000 in order to obtain the New Credit Facility.
The New
Credit Facility will be available on a revolving basis until it expires on
November 15, 2010, at which time any amounts outstanding under the New Credit
Facility will be due and payable. Advances under the New Credit Facility will be
made pursuant to a Revolving Credit Note (the “Promissory Note”) executed by the
Company in favor of Enterprise Bank & Trust. Such advances will bear
interest at a rate equal to .50% in excess of Enterprise Bank & Trust’s
prime-rate based interest rate for commercial loans, subject to a minimum annual
interest rate of 4.50%. Advances may be prepaid in whole or in part
without premium or penalty.
Under the
New Credit Agreement, advances are generally subject to customary borrowing
conditions. The New Credit Agreement also contains covenants with which the
Company must comply during the term of the New Credit Facility. Among other
things, such covenants restrict the Company’s ability to incur certain
additional debt; make specified restricted payments, dividends and capital
expenditures; authorize or issue capital stock; enter into certain transaction
with affiliates; consolidate or merge with or acquire another business; sell
certain of its assets or dissolve or wind up the Company. The New Credit
Agreement also contains certain events of default that are customary for
financings of this type including, without limitation: the failure to pay
principal, interest, fees or other amounts when due; the breach of specified
representations or warranties contained in the loan documents; cross-default
with certain other indebtedness of the Company; the entry of uninsured judgments
that are not bonded or stayed; failure to comply with the observance or
performance of specified agreements contained in the loan documents;
commencement of bankruptcy or other insolvency proceedings; and the failure of
any of the loan documents entered into in connection with the New Credit
Facility to be in full force and effect. After an event of default, and upon the
continuation thereof, the principal amount of all loans made under the New
Credit Facility would bear interest at a rate per annum equal to 4.00% above the
otherwise applicable interest rate (provided, that the interest rate may not
exceed the highest rate permissible under law), and the lender would have the
option to accelerate maturity and payment of the Company’s obligations under the
New Credit Facility.
At June
30, 2010 the Company had not drawn any amounts under the New Credit Agreement
and had no other indebtedness, including capital lease obligations, short-term
debt or long-term debt.
The
following table summarizes the Company’s contractual obligations at June 30,
2010:
24
|
Payments due by period
|
||||||||||||||||||||
|
Less than
|
1-3 | 3-5 |
More than
|
|||||||||||||||||
|
Contractual Obligations
|
Total
|
1 year
|
years
|
years
|
5 years
|
|||||||||||||||
|
Long-Term
Debt
|
- | - | - | - | - | |||||||||||||||
|
Capital
Lease Obligations
|
- | - | - | - | - | |||||||||||||||
|
Operating
Leases
|
$ | 565,386 | $ | 193,779 | $ | 273,807 | $ | 97,800 | - | |||||||||||
|
Unconditional
Purchase Obligations
|
- | - | - | - | - | |||||||||||||||
|
Other
Long-Term Obligations
|
- | - | - | - | - | |||||||||||||||
|
Total
Contractual Cash Obligations
|
$ | 565,386 | $ | 193,779 | $ | 273,807 | $ | 97,800 | $ | - | ||||||||||
Capital
expenditures were $0.3 million, $1.5 million and $1.1 million in fiscal 2010,
2009, and 2008, respectively. The Company believes that cash flows from
operations and available borrowings under its credit facilities will be
sufficient to finance fixed payments and planned capital expenditures of $0.8
million in 2011.
Cash
flows from operations may be negatively impacted by decreases in sales, market
conditions, and adverse changes in working capital. In the event that
economic conditions were to severely worsen for a protracted period of time, we
believe that we will be able to negotiate an amendment and waiver to our
existing credit facility or procure a replacement credit facility, and our
borrowing capacity under those arrangements will provide sufficient financial
flexibility. The Company would have options available to ensure
liquidity in addition to increased borrowing. Capital expenditures,
which are budgeted at $0.8 million for the fiscal year ended June 30, 2011,
could be postponed. At June 30, 2010, the Company had no bank
debt.
The
Company’s credit facility will be available until it expires on November 15,
2010. Based on discussions with the Bank, the Company believes it
will be able to negotiate an amendment with the Bank extending the term of the
credit facility.
Inflation
has not had a material effect on the Company's business or results of
operations. The Company makes its foreign sales in dollars and, accordingly,
sales proceeds are not affected by exchange rate fluctuations, although the
effect on its customers does impact the pace of incoming orders.
Seasonality
and Quarterly Results
In past
fiscal years, the Company has experienced moderate seasonal increases in net
sales during its second and third fiscal quarters (October 1 through March 31)
which in turn have affected net income. Such seasonal variations were
likely attributable to an increase in hospital equipment purchases at the
beginning of each calendar year (which coincides with many hospitals’ fiscal
years) and an increase in the severity of influenza during winter
months.
The
following table sets forth selected operating results for the eight quarters
ended June 30, 2009. The information for each of these quarters is
unaudited, but includes all normal recurring adjustments which the Company
considers necessary for a fair presentation thereof. These operating
results, however, are not necessarily indicative of results for any future
period. Further, operating results may fluctuate as a result of the
timing of orders, the Company’s product and customer mix, the introduction of
new products by the Company and its competitors, and overall trends in the
health care industry and the economy. While these patterns have an
impact on the Company’s quarterly operations, the Company is unable to predict
the extent of this impact in any particular period.
25
Dollars
in thousands, except per share data
|
June 30,
|
March 31,
|
Dec. 31,
|
Sept. 30,
|
June 30,
|
March 31,
|
Dec. 31,
|
Sept. 30,
|
|||||||||||||||||||||||||
|
Three
months ended,
|
2010
|
2010
|
2009
|
2009
|
2009
|
2009
|
2008
|
2008
|
||||||||||||||||||||||||
|
Net
sales
|
$ | 11,668 | $ | 11,627 | $ | 11,415 | $ | 11,324 | $ | 12,711 | $ | 12,390 | $ | 12,531 | $ | 14,441 | ||||||||||||||||
|
Gross
profit
|
2,896 | 2,846 | 2,945 | 2,403 | 3,115 | 2,474 | 2,710 | 3,501 | ||||||||||||||||||||||||
|
Income
(loss) from operations
|
222 | 140 | 45 | (1,189 | ) | (16,124 | ) | (724 | ) | (691 | ) | 317 | ||||||||||||||||||||
|
Net
income (loss)
|
86 | 38 | 22 | (745 | ) | (16,084 | ) | (450 | ) | (436 | ) | 208 | ||||||||||||||||||||
|
Basic
earnings (loss) per share
|
0.01 | - | - | (0.09 | ) | (2.04 | ) | (0.06 | ) | (0.06 | ) | 0.03 | ||||||||||||||||||||
|
Diluted
earnings (loss) per share
|
0.01 | - | - | (0.09 | ) | (2.04 | ) | (0.06 | ) | (0.06 | ) | 0.03 | ||||||||||||||||||||
Earnings
per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly amounts will not
necessarily equal the total for the year.
Litigation
and Contingencies
The
Company becomes, from time to time, a party to personal injury litigation
arising out of incidents involving the use of its products. The
Company believes that any potential judgments resulting from such claims over
its self-insured retention will be covered by the Company’s product liability
insurance.
Off
Balance Sheet Arrangements
The
Company does not have any off balance sheet arrangements.
Recently
Issued Accounting Pronouncements
See Item
8, Note 2 “Summary of Significant Accounting Policies” for a discussion of
recent accounting pronouncements and their impact on our consolidated financial
statements, if any.
At June
30, 2010, the Company did not have any debt outstanding. The
revolving credit facility bears an interest rate using the commercial bank’s
“floating reference rate” or LIBOR as the basis, as defined in the loan
agreement, and therefore is subject to additional expense should there be an
increase in market interest rates.
The
Company had no holdings of derivative financial or commodity instruments at June
30, 2010. Allied Healthcare Products has international sales; however
these sales are denominated in U.S. dollars, mitigating foreign exchange rate
fluctuation risk.
26
The
following described consolidated financial statements of Allied Healthcare
Products, Inc. are included in response to this item:
Report of
Independent Registered Public Accounting Firm.
Consolidated
Statement of Operations for the fiscal years ended June 30, 2010, 2009 and
2008.
Consolidated
Balance Sheet for the fiscal years ended June 30, 2010 and 2009.
Consolidated
Statement of Changes in Stockholders’ Equity for the fiscal years ended June 30,
2010, 2009 and 2008.
Consolidated
Statement of Cash Flows for the fiscal years ended June 30, 2010, 2009 and
2008.
Notes to
Consolidated Financial Statements.
Schedule
of Valuation and Qualifying Accounts and Reserves for the years ended June 30,
2010, 2009 and 2008.
All other
schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes
thereto.
27
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Allied
Healthcare Products, Inc.
We have
audited the accompanying consolidated balance sheet of Allied Healthcare
Products, Inc. and subsidiaries (collectively, the Company) as of June 30, 2010
and 2009, and the related consolidated statements of operations, changes in
stockholders’ equity and cash flows for each of the three years in the period
ended June 30, 2010. In connection with our audit of the consolidated
financial statements, we also have audited the related financial statement
schedule of valuation and qualifying accounts and reserves for the years ended
June 30, 2010, 2009 and 2008. These consolidated financial statements
and the financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal controls over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Allied Healthcare Products,
Inc. and subsidiaries as of June 30, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2010, in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, the related
financial statement schedule referred to above, when considered in relation to
the consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/
RubinBrown LLP
St.
Louis, Missouri
September
23, 2010
28
ALLIED
HEALTHCARE PRODUCTS, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
| Year ended June 30, |
2010
|
2009
|
2008
|
|||||||||
|
Net
sales
|
$ | 46,034,248 | $ | 52,072,676 | $ | 56,364,111 | ||||||
|
Cost
of sales
|
34,944,714 | 40,273,089 | 43,006,007 | |||||||||
|
Gross
profit
|
11,089,534 | 11,799,587 | 13,358,104 | |||||||||
|
Selling,
general and administrative expenses
|
11,871,758 | 13,041,564 | 12,084,971 | |||||||||
|
Impairment
of goodwill
|
- | 15,979,830 | - | |||||||||
|
Income
(loss) from operations
|
(782,224 | ) | (17,221,807 | ) | 1,273,133 | |||||||
|
Other
(income) expenses:
|
||||||||||||
|
Interest
expense
|
4,269 | - | 20,150 | |||||||||
|
Interest
income
|
(10,168 | ) | (60,277 | ) | (138,269 | ) | ||||||
|
Other,
net
|
117,189 | 50,062 | 60,005 | |||||||||
| 111,290 | (10,215 | ) | (58,114 | ) | ||||||||
|
Income
(loss) before provision for (benefit from) income taxes
|
(893,514 | ) | (17,211,592 | ) | 1,331,247 | |||||||
|
Provision
for (benefit from) income taxes
|
(293,941 | ) | (449,779 | ) | 448,748 | |||||||
|
Net
income (loss)
|
$ | (599,573 | ) | $ | (16,761,813 | ) | $ | 882,499 | ||||
|
Basic
income (loss) per share:
|
$ | (0.07 | ) | $ | (2.12 | ) | $ | 0.11 | ||||
|
Diluted
income (loss) per share:
|
$ | (0.07 | ) | $ | (2.12 | ) | $ | 0.11 | ||||
|
Weighted
average shares outstanding – Basic
|
8,066,740 | 7,898,782 | 7,883,659 | |||||||||
|
Weighted
average shares outstanding – Diluted
|
8,066,740 | 7,898,782 | 8,119,776 | |||||||||
See
accompanying Notes to Consolidated Financial Statements.
29
ALLIED
HEALTHCARE PRODUCTS, INC.
CONSOLIDATED
BALANCE SHEET
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 5,263,324 | $ | 1,943,364 | ||||
|
Accounts
receivable, net of allowances of $300,000
|
5,418,253 | 6,172,437 | ||||||
|
Inventories,
net
|
11,155,456 | 12,663,938 | ||||||
|
Income
tax receivable
|
877,665 | 937,273 | ||||||
|
Other
current assets
|
221,840 | 327,203 | ||||||
|
Total
current assets
|
22,936,538 | 22,044,215 | ||||||
|
Property,
plant and equipment, net
|
9,661,395 | 10,799,089 | ||||||
|
Other
assets, net
|
333,084 | 390,627 | ||||||
|
Total
assets
|
$ | 32,931,017 | $ | 33,233,931 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 1,950,446 | $ | 1,633,568 | ||||
|
Other
accrued liabilities
|
2,241,259 | 2,316,558 | ||||||
|
Deferred
income taxes
|
429,699 | 419,213 | ||||||
|
Deferred
revenue
|
688,200 | 688,200 | ||||||
|
Total
current liabilities
|
5,309,604 | 5,057,539 | ||||||
|
Deferred
revenue
|
802,900 | 1,491,100 | ||||||
|
Commitments
and contingencies (Notes 4 and 9)
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Preferred
stock; $0.01 par value; 1,500,000 shares authorized; no shares issued and
outstanding
|
- | - | ||||||
|
Series
A preferred stock; $0.01 par value; 200,000 shares authorized; no shares
issued and outstanding
|
- | - | ||||||
|
Common
stock; $0.01 par value; 30,000,000 shares authorized; 10,396,878 and
10,204,819 shares issued at June 30, 2010 and June 30, 2009, respectively;
8,093,386 and 7,901,327 shares outstanding at June 30, 2010 and June 30,
2009, respectively
|
103,969 | 102,048 | ||||||
|
Additional
paid-in capital
|
48,362,922 | 47,632,049 | ||||||
|
Accumulated
deficit
|
(916,950 | ) | (317,377 | ) | ||||
|
Less:
treasury stock, at cost; 2,303,492 shares at
|
||||||||
|
June
30, 2010 and 2009
|
(20,731,428 | ) | (20,731,428 | ) | ||||
|
Total
stockholders' equity
|
26,818,513 | 26,685,292 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 32,931,017 | $ | 33,233,931 | ||||
See
accompanying Notes to Consolidated Financial Statements.
30
ALLIED
HEALTHCARE PRODUCTS, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
|
Additional
|
||||||||||||||||||||
|
Common
|
Paid-in
|
Retained
|
Treasury
|
|||||||||||||||||
|
Stock
|
Capital
|
Earnings
(Deficit)
|
Stock
|
Total
|
||||||||||||||||
|
Balance,
July 1, 2007
|
$ | 101,871 | $ | 47,441,163 | $ | 15,673,080 | $ | (20,731,428 | ) | $ | 42,484,686 | |||||||||
|
Issuance
of common stock
|
15 | 6,098 | - | - | 6,113 | |||||||||||||||
|
Stock
based compensation
|
- | 76,823 | - | - | 76,823 | |||||||||||||||
|
Cumulative
effect of adoption of ASC 740, Accounting for Uncertainty in Income
Taxes
|
- | - | (111,143 | ) | - | (111,143 | ) | |||||||||||||
|
Net
income for the year ended June 30, 2008
|
- | - | 882,499 | - | 882,499 | |||||||||||||||
|
Balance,
June 30, 2008
|
101,886 | 47,524,084 | 16,444,436 | (20,731,428 | ) | 43,338,978 | ||||||||||||||
|
Issuance
of common stock
|
162 | 80,931 | - | - | 81,093 | |||||||||||||||
|
Stock
based compensation
|
- | 27,034 | - | - | 27,034 | |||||||||||||||
|
Net
loss for the year ended June 30, 2009
|
- | - | (16,761,813 | ) | - | (16,761,813 | ) | |||||||||||||
|
Balance,
June 30, 2009
|
102,048 | 47,632,049 | (317,377 | ) | (20,731,428 | ) | 26,685,292 | |||||||||||||
|
Issuance
of common stock
|
1,921 | 82,947 | - | - | 84,868 | |||||||||||||||
|
Stock
based compensation
|
- | 647,926 | - | - | 647,926 | |||||||||||||||
|
Net
loss for the year ended June 30, 2010
|
- | - | (599,573 | ) | - | (599,573 | ) | |||||||||||||
|
Balance,
June 30, 2010
|
$ | 103,969 | $ | 48,362,922 | $ | (916,950 | ) | $ | (20,731,428 | ) | $ | 26,818,513 | ||||||||
See
accompanying Notes to Consolidated Financial Statements.
31
ALLIED
HEALTHCARE PRODUCTS, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
Year
ended June 30,
|
2010
|
2009
|
2008
|
|||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | (599,573 | ) | $ | (16,761,813 | ) | $ | 882,499 | ||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
1,364,923 | 1,291,777 | 1,229,753 | |||||||||
|
Impairment
of goodwill
|
- | 15,979,830 | - | |||||||||
|
Stock
based compensation
|
647,926 | 27,034 | 76,823 | |||||||||
|
Provision
for doubtful accounts and sales returns and allowances
|
1,655 | 548 | (212,278 | ) | ||||||||
|
Deferred
tax provision (benefit)
|
55,788 | 219,432 | (389,052 | ) | ||||||||
|
Loss
on disposition of equipment
|
67,848 | 8,463 | 42,915 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
752,529 | 268,698 | 1,030,061 | |||||||||
|
Inventories
|
1,508,482 | (617,488 | ) | 953,022 | ||||||||
|
Income
tax receivable
|
59,608 | (937,273 | ) | - | ||||||||
|
Other
current assets
|
105,363 | 67,772 | (119,721 | ) | ||||||||
|
Accounts
payable
|
316,878 | (957,236 | ) | (449,509 | ) | |||||||
|
Deferred
revenue
|
(688,200 | ) | (688,200 | ) | 465,000 | |||||||
|
Other
accrued liabilities
|
(75,302 | ) | (643,776 | ) | 164,966 | |||||||
|
Net
cash provided by (used in) operating activities
|
3,517,925 | (2,742,232 | ) | 3,674,479 | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Capital
expenditures
|
(337,463 | ) | (1,544,512 | ) | (1,135,447 | ) | ||||||
|
Proceeds
from disposal of property, plant and equipment
|
54,630 | - | - | |||||||||
|
Purchase
of intangible asset
|
- | - | (35,000 | ) | ||||||||
|
Net
cash used in investing activities
|
(282,833 | ) | (1,544,512 | ) | (1,170,447 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Stock
options exercised
|
3,469 | 81,093 | 3,438 | |||||||||
|
Minimum
tax withholdings on stock options exercised
|
(406,110 | ) | - | - | ||||||||
|
Excess
tax benefit from exercise of stock options
|
487,509 | - | 2,675 | |||||||||
|
Net
cash provided by financing activities
|
84,868 | 81,093 | 6,113 | |||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
3,319,960 | (4,205,651 | ) | 2,510,145 | ||||||||
|
Cash
and cash equivalents at beginning of year
|
1,943,364 | 6,149,015 | 3,638,870 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 5,263,324 | $ | 1,943,364 | $ | 6,149,015 | ||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
|
$ | 4,269 | $ | - | $ | 8,934 | ||||||
|
Income
taxes
|
$ | 31,039 | $ | 658,512 | $ | 616,382 | ||||||
See
accompanying Notes to Consolidated Financial Statements.
32
ALLIED
HEALTHCARE PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Allied
Healthcare Products, Inc. (the “Company” or “Allied”) is a manufacturer of
respiratory products used in the health care industry in a wide range of
hospital and alternate site settings, including post-acute care facilities, home
health care and trauma care. The Company's product lines include
respiratory care products, medical gas equipment and emergency medical
products.
2. Summary
of Significant Accounting Policies
The significant accounting policies
followed by Allied are described below.
Use
of estimates
The
policies utilized by the Company in the preparation of the consolidated
financial statements conform to accounting principles generally accepted in the
United States of America, and require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual amounts
could differ from those estimates.
Principles
of consolidation
The consolidated financial statements
include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and
intercompany balances are eliminated.
Revenue
recognition
Revenue
is recognized for all sales, including sales to agents and distributors, at the
time products are shipped and title has transferred, provided that a purchase
order has been received or a contract executed, there are not uncertainties
regarding customer acceptance, the sales price is fixed and determinable and
collectability is reasonably assured. Sales discounts, returns and
allowances are included in net sales, and the provision for doubtful accounts is
included in selling, general and administrative
expenses. Additionally, it is the Company’s practice to include
revenues generated from freight billed to customers in net sales with
corresponding freight expense included in cost of sales in the consolidated
statement of operations.
The sales
price is fixed by Allied’s acceptance of the buyer’s firm purchase order. The
sales price is not contingent, or subject to additional
discounts. Allied’s standard shipment terms are “F.O.B.
shipping point” as stated in Allied’s Terms and Conditions of
Sale. The customer is responsible for obtaining insurance for and
bears the risk of loss for product in-transit. Additionally, sales to
customers do not include the right to return merchandise without the prior
consent of Allied. In those cases where returns are accepted, product
must be current and restocking fees must be paid by the respective
customer. A provision has been made for estimated sales returns and
allowances. These estimates are based on historical analysis of
credit memo data and returns.
Allied
does not provide installation services for its products. Most
products shipped are ready for immediate use by the customer. The
Company’s in-wall medical system components, central station pumps and
compressors, and headwalls do require installation by the
customer. These products are typically purchased by a third-party
contractor who is ultimately responsible for installation
services. Accordingly, the customer purchase order or contract does
not require customer acceptance of the installation prior to completion of the
sale transaction and revenue
recognition. Allied’s standard payment terms are net
30 days from the date of shipment, and payment is specifically not subject to
customer inspection or acceptance, as stated in Allied’s Terms and Conditions of
Sale. The buyer becomes obligated to pay Allied at the time of
shipment. Allied requires credit applications from its customers and
performs credit reviews to determine the creditworthiness of new
customers. Allied requires letters of credit, where warranted, for
international transactions. Allied also protects its legal rights
under mechanics lien laws when selling to contractors.
33
Allied
does offer limited warranties on its products. The standard warranty
period is one year. The Company’s cost of providing warranty service
for its products for the years ended June 30, 2010, June 30, 2009, and June 30,
2008 was $135,032, $166,651, and $62,954, respectively. The related
liability for warranty service amounted to $95,547 and $104,157 at June 30, 2010
and 2009, respectively.
Marketing
and Advertising Costs
Promotional
and advertising costs are expensed as incurred and are included in selling,
general and administrative expenses in the Statements of Consolidated
Operations.
Cash
and cash equivalents
For purposes of the statement of cash
flows, the Company considers all highly liquid investments with a maturity of
three months or less when acquired to be cash equivalents.
Foreign
currency transactions
Allied
has international sales which are denominated in U.S. dollars, the functional
currency for these transactions.
Accounts
receivable and concentrations of credit risk
Accounts
receivable are recorded at the invoiced amount. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit
losses based on past experience and an analysis of current amounts due, and
historically such losses have been within management's
expectations. The Company’s customers can be grouped into three main
categories: medical equipment distributors, construction contractors and health
care institutions. At June 30, 2010 the Company believes that it has
no significant concentration of credit risk.
Inventories
Inventories
are stated at the lower of cost, determined using the last-in, first-out
(“LIFO”) method, or market. If the first-in, first-out method (which
approximates replacement cost) had been used in determining cost, inventories
would have been $2,396,583 and $2,222,825 higher at June 30, 2010 and 2009,
respectively. Changes in the LIFO reserve are included in cost of
sales. Cost of sales was reduced by $0, $0 and $10,373 in fiscal
2010, 2009, and 2008 respectively, as a result of LIFO
liquidations. Costs in inventory include raw materials, direct labor
and manufacturing overhead.
Inventory
is recorded net of a reserve for obsolete and excess inventory which is
determined based on an analysis of inventory items with no usage in the
preceding year and for inventory items for which there is greater than two
years’ usage on hand. The reserve for obsolete and excess inventory
was $1,476,490 and $1,347,648 at June 30, 2010 and 2009,
respectively.
Property,
plant and equipment
Property,
plant and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from 3 to 35 years. Expenditures for repairs, maintenance and
renewals are charged to income as incurred. Expenditures, which
improve an asset or extend its estimated useful life, are
capitalized. When properties are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in income.
34
Goodwill
As a
result of our 2009 annual impairment review, we concluded that the carrying
value of our goodwill was impaired. As a result, our fourth quarter
and full year 2009 financial results included an aggregate non-cash pretax
impairment charge of approximately $16.0 million. The impairment
charge was the result of the annual assessment for impairment and reflected
factors impacted by market conditions and the completion of our annual budget
process. This non-cash charge had no effect on our cash balances or
cash flows.
Impairment
of long-lived assets
The
Company evaluates impairment of long-lived assets under the provisions of ASC
Topic 360: “Property, Plant and Equipment.” ASC 360 provides a single
accounting model for long-lived assets to be disposed of and reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. Under ASC 360,
if the sum of the expected future cash flows (undiscounted and without interest
charges) of the long-lived assets is less than the carrying amount of such
assets, an impairment loss will be recognized. No impairment losses
of long-lived assets or identifiable intangibles were recorded by the Company
for fiscal years ended June 30, 2010, 2009, and 2008.
Self-insurance
The
Company maintains a self-insurance program for a portion of its health care
costs. Self-insurance costs are accrued based upon the aggregate of
the liability for reported claims and the estimated liability for claims
incurred but not reported. As of June 30, 2010 and 2009, the Company
had $300,000 and $395,000 respectively, of accrued liabilities related to health
care claims. In order to establish the self-insurance reserves, the
Company utilized actuarial estimates of expected claims based on analyses of
historical data.
Fair
value of financial instruments
The
Company’s financial instruments consist of cash, accounts receivable and
accounts payable. The carrying amounts for cash, accounts receivable and
accounts payable approximate their fair value due to the short maturity of these
instruments.
Income
taxes
The
Company accounts for income taxes under ASC Topic 740: “Income
Taxes.” Under ASC 740, the deferred tax provision is determined using
the liability method, whereby deferred tax assets and liabilities are recognized
based upon temporary differences between the financial statement and income tax
bases of assets and liabilities using presently enacted tax
rates. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
The
Company recognizes tax liabilities when, despite the Company’s belief that its
tax return positions are supportable, the Company believes that certain
positions may not be fully sustained upon review by tax
authorities. Benefits from tax positions are measured at the largest
amount of benefit that is greater than 50 percent likely of being realized upon
settlement. To the extent the Company deems it necessary to record a
liability for its tax positions, the current portion of the liability is
included in income taxes payable and the noncurrent portion is included in other
liabilities in consolidated balance sheet. If upon the final tax
outcome of these matters the ultimate liability is different than the amounts
recorded, such differences are reflected in income tax expense in the period in
which such determination is made. The Company’s federal tax returns
for the fiscal years after 2007 remain subject to examination. The
various states in which the Company is subject to income tax are generally open
for the fiscal years 2007 and after.
The
Company classifies interest expenses on taxes payable as interest expense.
Penalties are classified as a component of other expenses.
35
Research
and development costs
Research
and development costs are expensed as incurred and are included in selling,
general and administrative expenses. Research and development
expenses for the years ended June 30, 2010, 2009 and 2008 were $858,509,
$917,506, and $799,925, respectively.
Earnings
per share
Basic
earnings per share are based on the weighted average number of shares of common
stock outstanding during the year. Diluted earnings per share are
based on the sum of the weighted averaged number of shares of common stock and
common stock equivalents outstanding during the year. The weighted
average number of basic shares outstanding for the years ended June 30, 2010,
2009 and 2008 was 8,066,740, 7,898,782 and 7,883,659 shares, respectively. The
weighted average number of diluted shares outstanding for the years ended June
30, 2010, 2009 and 2008 was 8,066,740, 7,898,782 and 8,119,776 shares,
respectively. The dilutive effect of the Company's employee and director stock
option plans are determined by use of the treasury stock
method. Potential common shares not included in the calculation of
net loss per share, as their effect would be anti-dilutive, are 57,193 and
273,596 for the years ended June 30, 2010 and 2009, respectively.
Employee
stock-based compensation
On July
1, 2005 the company adopted the provisions of ASC Topic 718: “Compensation –
Stock Compensation,” using the modified prospective transition method which does
not require prior periods to be restated. ASC 718 sets accounting
requirements for “share-based” compensation to employees, including employee
stock purchase plans, and requires companies to recognize in the statement of
operations the grant-date fair value of the stock options and other equity-based
compensation.
The fair
value of options granted is estimated on the date of grant using the
Black-Scholes option-pricing model. The following table summarizes
the weighted average assumptions utilized in the Black-Scholes option pricing
model for options granted during the fiscal years ended June 30, 2010, 2009 and
2008.
|
2010
|
2009
|
2008
|
||||||||||
|
Weighted-average
fair value
|
$ | 1.91 | $ | 1.72 | $ | 3.00 | ||||||
|
Weighted-average
volatility
|
59 | % | 40 | % | 40 | % | ||||||
|
Weighted-average
expected life (in years)
|
3.0 | 6.0 | 6.0 | |||||||||
|
Weighted-average
risk-free interest rate
|
1.60 | % | 2.75 | % | 3.91 | % | ||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
Expected
volatility is based on the historical volatility of the Company’s common stock
to estimate future volatility. The risk-free rates are taken from
rates as published by the Federal Reserve and represent the yields on actively
traded treasury securities for terms equal or approximately equal to the
expected terms of the options. The expected term is calculated using
the SEC Staff Accounting Bulletin 107 (ASC 718-10-S99) simplified
method. The dividend yield is zero based on the fact that the Company
has no intention of paying dividends in the near term.
Share-based
compensation expense included in the statement of operations for the fiscal
years ended June 30, 2010, 2009 and 2008 was approximately $648,000, $27,000 and
$77,000 respectively. Unrecognized shared-based compensation cost
related to unvested stock options as of June 30, 2010 amounts to approximately
$13,000. The cost is expected to be recognized over the next two
fiscal years.
The Company recognized income tax
benefits for share-based compensation arrangements of approximately $259,000,
$11,000 and $31,000 for the years ended June 30, 2010, 2009 and 2008,
respectively.
36
The
following table summarizes stock option exercises for the fiscal years ended
June 30, 2010, 2009 and 2008.
|
2010
|
2009
|
2008
|
||||||||||
|
Stock
options exercised
|
543,500 | 16,250 | 1,500 | |||||||||
|
Total
intrinsic value of stock options exercised
|
$ | 1,218,771 | $ | 25,281 | $ | 6,688 | ||||||
|
Cash
received from stock option exercises
|
$ | 3,469 | $ | 81,100 | $ | 3,438 | ||||||
|
Tax
benefit from stock options exercised
|
$ | 487,509 | $ | 10,113 | $ | 2,675 | ||||||
Recently
Adopted Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued authoritative
guidance titled, “The FASB Accounting Standards Codification (“ASC”) and the
Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB
Statement No. 162.” The guidance provides for the FASB Accounting Standards
Codification (the “Codification”) to become the single official source of
authoritative, nongovernmental U.S. Generally Accepted Accounting Principles
(“GAAP”). The Codification did not change U.S. GAAP but reorganizes the
accounting literature and was effective for the Company’s interim and annual
periods ending after September 15, 2009. Adoption did not have a material impact
on the Company’s consolidated financial statements.
In
September 2006, the FASB issued guidance titled “Fair Value Measurements” (ASC
Topic 820), to clarify the definition of fair value, establish a framework for
measuring fair value and expand the disclosures required relative to fair value
measurements. The Company adopted the provisions of ASC Topic 820 on July 1,
2009. The adoption of this statement did not have a material impact
on the Company’s consolidated financial statements.
In
December 2007, the FASB issued guidance titled “Business Combinations” (ASC
Topic 805), which provides guidance on the accounting and reporting for business
combinations. The guidance is effective for fiscal years beginning after
December 15, 2008 and was adopted by the Company on July 1, 2009. Adoption did
not have a material impact on the Company’s consolidated financial
statements.
In April
2009, the FASB issued guidance titled “Improving Disclosures about Fair Value
Measurement” (Accounting Standards Update 2010-06), which requires disclosure
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This
guidance also requires those disclosures in summarized financial information at
interim reporting periods. This guidance is effective for reporting periods
ending after June 15, 2009. The Company adopted this guidance effective July 1,
2009. The adoption of this guidance did not have a material impact on the
Company’s consolidated financial statements.
Recently
Issued Accounting Pronouncements
In June
2009, the FASB guidance titled “Consolidation” (ASC Topic 810), which amends
previous guidance to require an analysis to determine whether a variable
interest gives a company a controlling financial interest in a variable interest
entity. An ongoing reassessment of financial responsibility is required,
including interests in entities formed prior to the effective date of this
guidance. This guidance also eliminates the quantitative approach previously
required for determining whether a company is the primary beneficiary. It is
effective for fiscal years beginning after November 15, 2009. This guidance will
be adopted on July 1, 2010, and the Company does not expect this guidance will
have a material impact on its consolidated
financial statements.
37
In
October 2009, the FASB issued guidance titled “Revenue Recognition – Multiple
Deliverable Revenue Arrangements” (Accounting Standards Update 2009-13), which
requires entities to allocate revenue in an arrangement using estimated selling
prices of the delivered goods and services based on a selling price hierarchy.
The guidance eliminates the residual method of revenue allocation and requires
revenue to be allocated using the relative selling price method. This guidance
should be applied on a prospective basis for revenue arrangements entered into
or materially modified in fiscal years beginning on or after June 15, 2010. This
guidance will be adopted on July 1, 2010, and the Company does not expect this
guidance will have a material impact on its consolidated financial
statements.
3.
Financing
Effective
as of November 13, 2009, the Company terminated its revolving credit
facility arrangement with Bank of America, N.A., as successor to LaSalle Bank
National Association (the “Old Credit Agreement”). The Old Credit Agreement
provided for borrowings of up to $10,000,000 and was available through
September 1, 2010. No loans were outstanding under the Old Credit Agreement
as of November 13, 2009.
On
November 17, 2009, in order to obtain replacement financing, the Company
entered into a Loan and Security Agreement by and between Enterprise Bank &
Trust and the Company (the “New Credit Agreement”) pursuant to which the Company
obtained a secured revolving credit facility with borrowing availability of up
to $7,500,000 (the “New Credit Facility”). The Company’s obligations under the
New Credit Facility are secured by certain assets, including all inventories and
accounts receivable of the Company. The Company also paid a closing fee of
$20,000 in order to obtain the New Credit Facility.
The New
Credit Facility will be available on a revolving basis until it expires on
November 15, 2010, at which time any amounts outstanding under the New Credit
Facility will be due and payable. Advances under the New Credit Facility will be
made pursuant to a Revolving Credit Note (the “Promissory Note”) executed by the
Company in favor of Enterprise Bank & Trust. Such advances will bear
interest at a rate equal to .50% in excess of Enterprise Bank & Trust’s
prime-rate based interest rate for commercial loans, subject to a minimum annual
interest rate of 4.50%. Advances may be prepaid in whole or in part
without premium or penalty.
Under the
New Credit Agreement, advances are generally subject to customary borrowing
conditions. The New Credit Agreement also contains covenants with which the
Company must comply during the term of the New Credit Facility. Among other
things, such covenants restrict the Company’s ability to incur certain
additional debt; make specified restricted payments, dividends and capital
expenditures; authorize or issue capital stock; enter into certain transaction
with affiliates; consolidate or merge with or acquire another business; sell
certain of its assets or dissolve or wind up the Company. The New Credit
Agreement also contains certain events of default that are customary for
financings of this type including, without limitation: the failure to pay
principal, interest, fees or other amounts when due; the breach of specified
representations or warranties contained in the loan documents; cross-default
with certain other indebtedness of the Company; the entry of uninsured judgments
that are not bonded or stayed; failure to comply with the observance or
performance of specified agreements contained in the loan documents;
commencement of bankruptcy or other insolvency proceedings; and the failure of
any of the loan documents entered into in connection with the New Credit
Facility to be in full force and effect. After an event of default, and upon the
continuation thereof, the principal amount of all loans made under the New
Credit Facility would bear interest at a rate per annum equal to 4.00% above the
otherwise applicable interest rate (provided, that the interest rate may not
exceed the highest rate permissible under law), and the lender would have the
option to accelerate maturity and payment of the Company’s obligations under the
New Credit Facility.
The prime
rate was 3.25% on June 30, 2010.
The
Company was in compliance with all of the financial covenants associated with
its credit facility at June 30, 2010.
38
At June
30, 2010 the Company had not drawn any amounts under the New Credit Facility and
had no other indebtedness, including capital lease obligations, short-term debt
and long-term debt.
4.
Lease
Commitments
The
Company leases certain of its equipment under non-cancelable operating lease
agreements. Minimum lease payments under operating leases at June 30,
2010 are as follows:
|
Fiscal Year
|
Operating
|
|||
|
Leases
|
||||
|
2011
|
$ | 193,779 | ||
|
2012
|
154,588 | |||
|
2013
|
119,219 | |||
|
2014
|
97,800 | |||
|
Total
minimum lease payments
|
$ | 565,386 | ||
Rental
expense incurred on operating leases in fiscal 2010, 2009, and 2008 totaled
$275,446, $355,975 and $303,158 respectively.
5. Income
Taxes
The
provision for (benefit from) income taxes consists of the
following:
|
2010
|
2009
|
2008
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | (324,691 | ) | $ | (586,836 | ) | $ | 720,838 | ||||
|
State
|
(25,038 | ) | (101,076 | ) | 116,962 | |||||||
|
Total
current
|
(349,729 | ) | (687,912 | ) | 837,800 | |||||||
|
Deferred:
|
||||||||||||
|
Federal
|
108,702 | 203,778 | (299,045 | ) | ||||||||
|
State
|
(52,914 | ) | 34,355 | (90,007 | ) | |||||||
|
Total
deferred
|
55,788 | 238,133 | (389,052 | ) | ||||||||
| $ | (293,941 | ) | $ | (449,779 | ) | $ | 448,748 | |||||
A
reconciliation of income taxes, with the amounts computed at the statutory
federal rate is as follows:
|
2010
|
2009
|
2008
|
||||||||||
|
Computed
tax at federal statutory rate
|
$ | (303,795 | ) | $ | (5,851,941 | ) | $ | 452,624 | ||||
|
State
income taxes, net of federal tax benefit
|
(26,860 | ) | (45,887 | ) | 17,791 | |||||||
|
Non
deductible goodwill impairment
|
- | 5,433,142 | - | |||||||||
|
Tax
exempt income
|
(492 | ) | (17,963 | ) | (37,419 | ) | ||||||
|
Non
deductible expenses
|
26,544 | 24,870 | 22,783 | |||||||||
|
Other,
net
|
10,662 | 8,000 | (7,031 | ) | ||||||||
|
Total
|
$ | (293,941 | ) | $ | (449,779 | ) | $ | 448,748 | ||||
39
The
deferred tax assets and deferred tax liabilities recorded on the balance sheet
as of June 30, 2010 and 2009 are as follows:
|
2010
|
2009
|
|||||||||||||||
|
Deferred Tax Assets
|
Deferred Tax
Liabilities
|
Deferred Tax Assets
|
Deferred Tax
Liabilities
|
|||||||||||||
|
Current:
|
||||||||||||||||
|
Bad
debts
|
$ | 40,000 | $ | — | $ | 40,000 | $ | — | ||||||||
|
Prepaid
expenses
|
— | 16,981 | — | 30,870 | ||||||||||||
|
Deferred
revenue
|
275,280 | — | 275,280 | — | ||||||||||||
|
Accrued
liabilities
|
367,896 | — | 423,496 | — | ||||||||||||
|
Inventory
|
— | 1,095,894 | — | 1,127,119 | ||||||||||||
| 683,176 | 1,112,875 | 738,776 | 1,157,989 | |||||||||||||
|
Non
Current:
|
||||||||||||||||
|
Depreciation
|
— | 471,117 | — | 412,008 | ||||||||||||
|
State
tax NOL
|
57,550 | — | — | — | ||||||||||||
|
Intangible
assets
|
— | 7,296 | 4,309 | — | ||||||||||||
|
Deferred
revenue
|
321,160 | — | 596,440 | — | ||||||||||||
|
Accrued
pension liability
|
64,509 | — | 55,812 | — | ||||||||||||
|
Stock
options
|
328,167 | — | 68,997 | — | ||||||||||||
|
Other
|
— | 12,602 | 12,122 | — | ||||||||||||
| 771,386 | 491,015 | 737,680 | 412,008 | |||||||||||||
|
Valuation
Allowance
|
— | — | — | — | ||||||||||||
|
Total
deferred taxes
|
$ | 1,454,562 | $ | 1,603,890 | $ | 1,476,456 | $ | 1,569,997 | ||||||||
The net long term deferred tax asset of
$280,371 and $325,672 is included in other assets in the June 30, 2010 and 2009
consolidated balance sheet, respectively. At June 30, 2010 there were
$1.7 million dollars of net operating loss carryforwards which would expire in
2030, however, these net operating losses will be carried back on the Company’s
federal and certain states to offset taxes previously paid for prior
years. In addition, the Company has state tax net operating losses of
approximately $959,000 that expire in varying years up to 2029.
In
2006, the FASB issued ASC Topic 740: “Income Taxes,” which clarifies the
accounting for uncertainty in tax positions. ASC 740 requires that
the Company recognize in its financial statements the impact of a tax position,
if that position is more likely than not of being sustained on audit, based on
the technical merits of the position. The Company adopted the
provisions of ASC 740 on July 1, 2007, the beginning of the Company’s fiscal
year. Upon the adoption of ASC 740 on July 1, 2007, the Company
recognized a $286,549 increase in the liability for unrecognized tax benefits
including interest and penalties. The increase was accounted for as a
reduction to the July 1, 2007 balance of retained earnings in the amount of
$111,143 and an increase to deferred tax assets of $175,406. The
total liability for unrecognized tax benefits totaled $286,549 as of July 1,
2007.
Changes
in the unrecognized tax benefit during fiscal year 2008 were as
follows:
|
Unrecognized Tax Benefit
|
||||
|
Beginning
balance – July 1, 2007
|
$ | 286,549 | ||
|
Tax
positions related to prior years:
|
||||
|
Additions
|
120,708 | |||
|
Settlements
|
(407,257 | ) | ||
|
Tax
positions related to current year:
|
||||
|
Additions
|
— | |||
|
Reductions
|
— | |||
|
Lapses
in statue of limitations
|
— | |||
|
Ending
balance – June 30, 2008
|
$ | — | ||
40
The
addition of $120,708 and settlement of $407,257 for prior year tax positions
relate to the IRS examination for fiscal years 2005 and 2006. The
examination was settled in fiscal 2008 and the Company paid additional federal
taxes of $266,472 and interest of $53,132. Amended state income tax
returns for fiscal 2005 and 2006 were filed to report the IRS
adjustments. State taxes and interest expense related to the amended
returns were estimated to be $64,334, and are included in current liabilities at
June 30, 2008. IRS adjustments resulted in an additional liability
for unrecognized tax benefits of $120,708, and an increase to deferred tax
assets of $133,878.
The
Company recognizes interest on taxes payable as interest expense and penalties
accrued related to unrecognized tax benefits as a component of other
expenses. Interest expense recognized for the period ended June 30,
2008 was $34,023. No penalties were incurred in the settlement of the
IRS examination. As a result accrued penalties in the amount of
$34,035 were eliminated during the period ended June 30, 2008.
The
Company files a federal and multiple state income tax returns. The
Company’s federal and state income tax returns are open for fiscal years ending
after June 30, 2007.
Management
of the Company is not aware of any additional needed liability for unrecognized
tax benefits at June 30, 2010 and June 30, 2009.
6.
Retirement Plan
The
Company offers a retirement savings plan under Section 401(k) of the Internal
Revenue Code to certain eligible salaried employees. Each employee
may elect to enter a written salary deferral agreement under which a portion of
such employee's pre-tax earnings may be contributed to the plan.
During the fiscal years ended June 30,
2010, 2009 and 2008, the Company made contributions of $252,858, $272,931, and
$257,309, respectively.
7. Stock
Based Compensation
The Company has established a 1994
Employee Stock Option Plan, a 1999 Incentive Stock Plan, and a 2009 Incentive
Stock Plan (collectively the “Employee Plans”). The Employee Plans
provide for the granting of options to the Company's executive officers and key
employees to purchase shares of common stock at prices equal to the fair market
value of the stock on the date of grant. Options to purchase up to 2,150,000
shares of common stock may be granted under the Employee Plans. Options
generally become exercisable ratably over a four year period or one-fourth of
the shares covered thereby on each anniversary of the date of grant, commencing
on the first or second anniversary of the date granted. The right to
exercise the options generally expires in ten years from the date of grant, or
earlier if an option holder ceases to be employed by the Company. On
August 27, 2009, the Company granted a non-qualified stock option to acquire
320,000 shares of the Company’s Common Stock, at an exercise price of $4.25, to
Mr. Refsland. Mr. Refsland’s option was fully vested at the time of
the grant and is exercisable over a period of six (6) years following the grant
date.
In
addition, the Company has established a 1995 Directors Non-Qualified Stock
Option Plan and a 2005 Directors Non-Qualified Stock Option Plan (collectively
the “Directors Plans”). The Directors Plans provide for the granting
of options to the Company's directors who are not employees of the Company to
purchase shares of common stock at prices equal to the fair market value of the
stock on the date of grant. Options to purchase up to 225,000 shares
of common stock may be granted under the Directors Plans. Options
shall become exercisable with respect to one-fourth of the shares covered
thereby on each anniversary of the date of grant, commencing on the second
anniversary of the date granted, except for certain options which become
exercisable with respect to all of the shares covered thereby one year after the
grant date. The right to exercise the options expires in ten years
from the date of grant, or earlier if an option holder ceases to be a director
of the Company.
41
A summary
of stock option transactions in fiscal 2008, 2009 and 2010, respectively,
pursuant to the Employee Plans and the Directors Plans is as
follows:
|
Weighted
|
||||||||||||||||
|
Average
|
||||||||||||||||
|
Weighted
|
Remaining
|
Aggregate
|
||||||||||||||
|
Average
|
Contractual
|
Intrinsic
|
||||||||||||||
|
Shares
|
Exercise Price
|
Term (years)
|
Value
|
|||||||||||||
|
June
30, 2007
|
732,750 | $ | 2.72 | |||||||||||||
|
Options
Granted
|
6,000 | $ | 6.73 | |||||||||||||
|
Options
Exercised
|
(1,500 | ) | $ | 2.29 | ||||||||||||
|
Options
Forfeited or Expired
|
(21,500 | ) | $ | 7.35 | ||||||||||||
|
June
30, 2008
|
715,750 | $ | 2.62 | 2.3 | $ | 3,172,070 | ||||||||||
|
June
30, 2008
|
715,750 | $ | 2.62 | |||||||||||||
|
Options
Granted
|
6,000 | $ | 4.05 | |||||||||||||
|
Options
Exercised
|
(16,250 | ) | $ | 4.99 | ||||||||||||
|
Options
Forfeited or Expired
|
(15,000 | ) | $ | 5.25 | ||||||||||||
|
June
30, 2009
|
690,500 | $ | 2.52 | 1.2 | $ | 1,312,131 | ||||||||||
|
June
30, 2009
|
690,500 | $ | 2.52 | |||||||||||||
|
Options
Granted
|
326,000 | $ | 4.26 | |||||||||||||
|
Options
Exercised
|
(543,500 | ) | $ | 2.00 | ||||||||||||
|
Options
Forfeited or Expired
|
0 | $ | 0.00 | |||||||||||||
|
June
30, 2010
|
473,000 | $ | 4.32 | 4.8 | $ | 18,140 | ||||||||||
|
Exercisable
at June 30, 2010
|
454,500 | $ | 4.28 | 4.7 | $ | 18,140 | ||||||||||
The
following table provides additional information for options outstanding and
exercisable at June 30, 2010:
42
Options
Outstanding
|
Range of Exercise Prices
|
Number
|
Weighted Average
Remaining Life
|
Weighted Average
Exercise Price
|
||||||
|
2.75
- 4.24
|
72,000 |
1.8
years
|
$ | 3.43 | |||||
|
4.25
- 4.25
|
320,000 |
5.2
years
|
$ | 4.25 | |||||
|
4.26
- 6.99
|
81,000 |
6.0
years
|
$ | 5.36 | |||||
|
$2.75
- 6.99
|
473,000 |
4.8
years
|
$ | 4.32 | |||||
Options
Exercisable
|
Range of Exercise Prices
|
Number
|
Weighted Average
Exercise Price
|
||||||
|
2.75
- 4.24
|
72,000 | $ | 3.43 | |||||
|
4.25
- 4.25
|
320,000 | $ | 4.25 | |||||
|
4.26
- 6.99
|
62,500 | $ | 5.41 | |||||
|
$2.75
- 6.99
|
454,500 | $ | 4.28 | |||||
See Note
2 for discussion of accounting for stock awards and related fair value
disclosures.
43
8. Supplemental
Balance Sheet Information
|
June 30,
|
|||||||||
|
2010
|
2009
|
||||||||
|
Inventories
|
|||||||||
|
Work
in progress
|
$ | 802,550 | $ | 718,711 | |||||
|
Component
parts
|
7,984,369 | 8,981,435 | |||||||
|
Finished
goods
|
3,845,027 | 4,311,440 | |||||||
|
Reserve
for obsolete and excess inventory
|
(1,476,490 | ) | (1,347,648 | ) | |||||
| $ | 11,155,456 | $ | 12,663,938 | ||||||
|
Estimated
|
|||||||||
|
Useful
Life
|
|||||||||
|
(years)
|
|||||||||
|
Property,
plant and equipment
|
|||||||||
|
Machinery
and equipment
|
3-10
|
$ | 11,251,658 | $ | 11,128,838 | ||||
|
Buildings
|
28-35
|
12,203,870 | 12,203,870 | ||||||
|
Land
and land improvements
|
5-7
|
934,216 | 934,216 | ||||||
|
Total
property, plant and equipment at cost
|
24,389,744 | 24,266,924 | |||||||
|
Less
accumulated depreciation and amortization
|
(14,728,349 | ) | (13,467,835 | ) | |||||
| $ | 9,661,395 | $ | 10,799,089 | ||||||
|
Depreciation
expense was $1.4 million, $1.3 million, and $1.2 million for the fiscal
years ended
|
|||||||||
|
June
30, 2010, 2009 and 2008, respectively.
|
|||||||||
|
Other
accrued liabilities
|
|||||||||
|
Accrued
compensation expense
|
$ | 1,553,772 | $ | 1,682,680 | |||||
|
Customer
deposits
|
377,371 | 278,549 | |||||||
|
Other
|
310,116 | 355,329 | |||||||
| $ | 2,241,259 | $ | 2,316,558 | ||||||
9. Commitments
and Contingencies
Legal
Claims
The
Company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities. The Company intends to continue to conduct
business in such a manner as to avert any FDA action seeking to interrupt or
suspend manufacturing or require any recall or modification of
products.
The
Company has recognized the costs and associated liabilities only for those
investigations, claims and legal proceedings for which, in its view, it is
probable that liabilities have been incurred and the related amounts are
estimable. Based upon information currently available, management
believes that existing accrued liabilities are sufficient and that it is not
reasonably possible at this time that any additional liabilities will result
from the resolution of these matters that would have a material adverse effect
on the Company’s consolidated results of operations, financial position, or cash
flows.
Employment
Contract
In March
2007, the Company entered into a three year employment contract with its chief
executive officer. The contract is subject to annual renewals after the initial
term. The contract was amended and restated in December 2009 without
extending its term. The contract includes termination without cause
and change of control provisions, under which the chief executive officer is
entitled to receive specified severance payments generally equal to two times
ending annual salary if the Company terminates his employment without cause or
he voluntarily terminates his employment with “good reason.” “Good Reason”
generally includes changes in the scope of his duties or location of employment
but also includes (i) the Company’s written election not to renew the Employment
Agreement and (ii) certain voluntary resignations by the chief executive officer
following a “Change of Control” as defined in the agreement.
44
10. Segment
Information
The Company operates in
one segment consisting of the manufacturing, marketing and distribution
of a variety of respiratory products used in the health care industry to
hospitals, hospital equipment dealers, hospital construction contractors, home
health care dealers and emergency medical product dealers. The
Company’s product lines include respiratory care products, medical gas equipment
and emergency medical products. The Company does not have
any one single customer that represents more than 10 percent of total
sales. Sales by region, and by product, are as
follows:
|
Sales
by Region
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Domestic
United States
|
$ | 37,337,662 | $ | 41,932,370 | $ | 45,592,686 | ||||||
|
Europe
|
1,390,631 | 1,272,728 | 1,390,788 | |||||||||
|
Canada
|
676,428 | 1,136,094 | 1,144,070 | |||||||||
|
Latin
America
|
3,326,792 | 4,426,046 | 4,923,096 | |||||||||
|
Middle
East
|
512,744 | 1,207,774 | 397,871 | |||||||||
|
Far
East
|
2,545,353 | 1,941,170 | 2,491,820 | |||||||||
|
Other
International
|
244,638 | 156,494 | 423,780 | |||||||||
| $ | 46,034,248 | $ | 52,072,676 | $ | 56,364,111 | |||||||
|
Sales
by Product
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Respiratory
care products
|
$ | 11,920,788 | $ | 12,303,067 | $ | 14,248,031 | ||||||
|
Medical
gas equipment
|
23,762,475 | 29,655,930 | 30,744,058 | |||||||||
|
Emergency
medical products
|
10,350,985 | 10,113,679 | 11,372,022 | |||||||||
| $ | 46,034,248 | $ | 52,072,676 | $ | 56,364,111 | |||||||
45
11. Quarterly
Financial Data (unaudited)
Summarized
quarterly financial data for fiscal 2010 and 2009 appears below (all amounts in
thousands):
|
June 30,
|
March 31,
|
Dec. 31,
|
Sept. 30,
|
June 30,
|
March 31,
|
Dec. 31,
|
Sept. 30,
|
|||||||||||||||||||||||||
|
Three
months ended,
|
2010
|
2010
|
2009
|
2009
|
2009
|
2009
|
2008
|
2008
|
||||||||||||||||||||||||
|
Net
sales
|
$ | 11,668 | $ | 11,627 | $ | 11,415 | $ | 11,324 | $ | 12,711 | $ | 12,390 | $ | 12,531 | $ | 14,441 | ||||||||||||||||
|
Gross
profit
|
2,896 | 2,846 | 2,945 | 2,403 | 3,115 | 2,474 | 2,710 | 3,501 | ||||||||||||||||||||||||
|
Income
(loss) from operations
|
222 | 140 | 45 | (1,189 | ) | (16,124 | ) | (724 | ) | (691 | ) | 317 | ||||||||||||||||||||
|
Net
income (loss)
|
86 | 38 | 22 | (745 | ) | (16,084 | ) | (450 | ) | (436 | ) | 208 | ||||||||||||||||||||
|
Basic
earnings (loss) per share
|
0.01 | - | - | (0.09 | ) | (2.04 | ) | (0.06 | ) | (0.06 | ) | 0.03 | ||||||||||||||||||||
|
Diluted
earnings (loss) per share
|
0.01 | - | - | (0.09 | ) | (2.04 | ) | (0.06 | ) | (0.06 | ) | 0.03 | ||||||||||||||||||||
Earnings
per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly amounts will not
necessarily equal the total for the year.
12. Baralyme®
Agreement
On August
27, 2004, Allied entered into an agreement with Abbott Laboratories (“Abbott”)
pursuant to which Allied agreed to cease production of its product Baralyme®,
and to affect the withdrawal of Baralyme® product held by distributors. The
agreement permits Allied to pursue the development of a new carbon dioxide
absorbent product. Baralyme®, a carbon dioxide absorbent product, has
been used safely and effectively in connection with inhalation anesthetics since
its introduction in the 1920s. In recent years, the number of
inhalation anesthetics has increased, giving rise to concerns regarding the use
of Baralyme® in conjunction with these newer inhalation anesthetics if Baralyme®
has been allowed, contrary to recommended practice, to become desiccated. The
agreement also provides that, for a period of eight years, Allied will not
manufacture, distribute, promote, market, sell, commercialize or donate any
Baralyme® product or similar product based upon potassium hydroxide and will not
develop or license any new carbon dioxide absorbent product containing potassium
hydroxide.
In
consideration of the foregoing, Abbott agreed to pay Allied an aggregate of
$5,250,000 of which $1,530,000 was paid on September 30, 2004 and the remainder
payable in four equal annual installments of $930,000 due on July 1, 2005
through July 1, 2008. The installment due on July 1, 2008 was
received by Allied on June 19, 2008.
The
initial payment of $1,530,000 from Abbott was received on September 30,
2004. The agreement required Abbott to pay Allied $600,000 for
reimbursement of Allied’s cost incurred in connection with withdrawal of
Baralyme® from the market, the disposal of such product, and severance payments
payable as a result of such withdrawal. This payment by Abbott of
$600,000 has been included in net sales during the year ended June 30, 2005, in
accordance with ASC
Topic 605: “Revenue Recognition.” The Company is the primary obligor in
the arrangement. It has sole authority to determine the method of
withdrawal of Baralyme® and discretion in such matters as employee layoffs,
disposal methods, and customer communications regarding the sale of replacement
products. The costs of executing the withdrawal are the sole
responsibility of the Company.
The
payments received from Abbott are being recognized into income, as net sales,
over the eight-year term of the agreement. Allied has no further
obligations under this agreement which would require the Company to repay these
amounts or otherwise impact this accounting treatment. During the
year ended June 30, 2010, $688,200 was recognized into income as net
sales.
46
A
reconciliation of deferred revenue resulting from the agreement with Abbott,
with the amounts received under the agreement, and amounts recognized as net
sales is as follows:
|
Twelve
Months ended
|
||||||||
|
June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Beginning
balance
|
$ | 2,179,300 | $ | 2,867,500 | ||||
|
Revenue
recognized as net sales
|
(688,200 | ) | (688,200 | ) | ||||
| 1,491,100 | 2,179,300 | |||||||
|
Less
- Current portion of deferred revenue
|
(688,200 | ) | (688,200 | ) | ||||
| $ | 802,900 | $ | 1,491,100 | |||||
In addition to the provisions of the
agreement relating to the withdrawal of the Baralyme® product, Abbott has agreed
to pay Allied up to $2,150,000 in product development costs to pursue
development of a new carbon dioxide absorption product for use in connection
with inhalation anesthetics that does not contain potassium hydroxide and does
not produce a significant exothermic reaction with currently available
inhalation agents. As of June 30, 2010, $2,150,000 has been received as a result
of product development activities.
In 2004,
Allied’s sales of Baralyme® were approximately $2.0 million and contributed
approximately $0.6 million in pre-tax earnings and cash flow from
operations. The majority of the $5,250,000 Allied has received from
Abbott will be recognized into income over the eight-year term of the agreement.
The net cash flow realized by Allied under the agreement with Abbott is
substantially equivalent to the net cash flow Allied would have expected to
realize from continued manufacture and sales of Baralyme® during the initial
five years of the period.
13. Goodwill
Goodwill
initially arises from business acquisitions and represents the value of
unidentifiable intangibles in an acquired business. Goodwill is then
evaluated at least annually for impairment in accordance with ASC Topic 350:
“Intangibles - Goodwill and Other.”
At June
30, 2008 the Company had goodwill of $16.0 million. As a result of
impairment testing as of June 30, 2009 the Company wrote down all of its
goodwill so that at June 30th, 2009
the Company had zero goodwill. This impairment reflected the
deteriorating market conditions the Company faces and lower prospects for
earnings and cash flow. The amount of the impairment was determined
in accordance with ASC Topic 350: “Intangibles - Goodwill and Other,” which
compares carrying value to the estimated fair value of assets and
liabilities. Prior to the impairment of goodwill in 2009, the Company
conducted a formal impairment test of goodwill annually at June 30th and between
annual tests if an event occurred or circumstances changed that would more
likely than not reduce the fair value of the Company below its carrying
value. The annual impairment test did not indicate an impairment of
goodwill at June 30, 2008.
Allied
operates as one reporting unit and prepares its annual goodwill impairment test
in that manner. None of the Company’s product lines constitute a
business, as that term is defined in the literature. Most of its
products are produced in one facility, and Allied does not produce separate
financial statements for any part of its business.
47
At June
30, 2008 the Company had goodwill of $16.0 million, resulting from the excess of
the purchase price over the fair value of net assets acquired in business
combinations. The Company completed its annual goodwill impairment
test during the fourth quarter of the fiscal year ended June 30,
2009. Due to a general slow down in orders as a result of the current
recession, operating profits and cash flows were lower than expected during
fiscal 2009. Based on that trend, management revised its earnings
forecast for fiscal 2009. In addition, during 2009 the stock traded
below book value, in part due to the global economic downturn’s impact on
Company performance and the turmoil in the equity markets.
In
accordance with ASC 350, a two step process is used to test for goodwill
impairment. The first step is to determine if there is an indication
of impairment by comparing the estimated fair value of the Company to its
carrying value including existing goodwill. Goodwill is considered
impaired if the carrying value of the Company exceeds the estimated fair
value. Upon indication of impairment, a second step is performed to
determine the amount of the impairment by comparing the implied fair value of
the Company’s goodwill with its carrying value.
To
estimate the fair value of the Company for step one, the Company utilized a
combination of income and market approaches. The income approach,
specifically a discounted cash flow methodology, included assumptions for, among
others, forecasted revenues, gross profit margins, operating profit margins,
working capital cash flow, perpetual growth rates and long term discount rates,
all of which requires significant judgments by management. These
assumptions take into account the current recessionary environment and its
impact on the Company’s business. In addition, the Company utilized a
discount rate appropriate to compensate for its earning risk relative the equity
markets as a whole. The Company considered historical industry
transactions in arriving at an appropriate control premium to identify the value
of the company to market participants for the market approach.
The
results of step one indicated that the Company’s goodwill was substantially
impaired. A step two analysis was performed to the extent necessary to determine
that all of the Company’s goodwill was impaired. Accordingly, the Company wrote
off the entire goodwill balance and recorded an impairment charge of $16.0
million. As a result, at June 30, 2009 the Company had a goodwill
balance of zero. The goodwill impairment charge is non-cash in nature
and does not affect the company’s liquidity, cash flows from operating
activities or debt covenants and will not have a material impact on future
operations.
|
A
tabular reconciliation of the goodwill balance is as
follows:
|
||||
|
Balance,
July 1, 2008
|
$ | 15,979,830 | ||
|
Impairment
of goodwill
|
(15,979,830 | ) | ||
|
Balance,
June 30, 2009
|
$ | - | ||
In
accordance with ASC Topic 360: “Property, Plant and Equipment,” the Company also
evaluated the recoverability of its long-lived assets. Based upon
this evaluation, the Company determined that there was no impairment of these
assets.
14. Subsequent
Events
The
Company has performed a review of events subsequent to the balance sheet
date through the issue date of the consolidated statements. No
events or transactions have occurred which would require recognition or
disclosure in the consolidated financial statements.
None.
48
|
|
(a)
|
Evaluation
of Disclosure Controls and
Procedures
|
We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
processed, summarized and reported within the time period specified in the rules
and forms of the SEC, and that such in formation is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In connection with our Annual Report on Form 10-K for the
fiscal year ended June 30, 2010, as required under Rule 13a-15(b) of the
Exchange Act, our management, including our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of the date of such evaluation to provide reasonable assurance
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the SEC’s rules and
forms.
(b)
Internal control over financial reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting which is
defined, as a process designed by, or under supervision of, our principal
executive and principle financial officer and effected by our Board of
Directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. However
these inherent limitations are known features of the financial reporting
process. It is possible to design into the process safeguards to
reduce, though not eliminate, the risk that misstatements are not prevented or
detected on a timely basis.
Management
assessed the effectiveness of our internal control over financial reporting as
of June 30, 2010. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on
this assessment, our management concluded that, as of June 30, 2010, our
internal control over financial reporting was effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
and presentation of financial statements for external purposes in accordance
with generally accepted accounting principles.
There were no changes to the Company’s internal controls over financial
reporting during the fourth quarter that have materially effected, or are
reasonable likely to materially effect, the Company’s internal control over
financial reporting.
This
Annual Report on Form 10-K does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management’s report is not subject to attestation by our
registered public accounting firm pursuant to provisions of the Dodd-Frank Wall
Street Reform and Consumer Protection Act that permit us to provide only
management’s report in this Annual Report on Form 10-K.
None.
49
A list of
our executive officers and biographical information appears at the end of Item
1, in Part I of this report. A definitive proxy statement is expected
to be filed with the Securities and Exchange Commission on or about October 8,
2010. The information required by this item is set forth under the
caption "Election of Directors”, under the caption “Executive Officers”, and
under the caption Section 16(a) Beneficial Ownership Reporting Compliance in the
definitive proxy statement, which information is incorporated herein by
reference thereto.
The
information required by this item is set forth under the caption "Executive
Compensation" in the definitive proxy statement, which information is
incorporated herein by reference thereto.
The information required by this item
is set forth under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the definitive proxy statement, which information is
incorporated herein by reference thereto.
None
The
information by this item will appear in the section entitled “Audit Fees”
included in the Company’s definitive Proxy Statement to be filed on or about
October 8, 2010, relating to the 2010 Annual Meeting of Shareowners and such
information is incorporated herein by reference.
1. Financial
Statements
The following consolidated financial
statements of the Company and its subsidiaries are included in response to Item
8:
Consolidated Statement of Operations
for the years ended June 30,
2010, 2009, and 2008
Consolidated
Balance Sheet at June 30, 2010 and 2009
Consolidated Statement of Changes in
Stockholders’ Equity for the
years ended June 30, 2010, 2009
and
2008
Consolidated Statement of Cash Flows
for the years ended June 30, 2010, 2009 and
2008
Notes to Consolidated Financial
Statements
Report of Independent Registered Public
Accounting Firm
50
2. Financial
Statement Schedule
Valuation and Qualifying Accounts and
Reserves for the Years Ended
June 30, 2010, 2009 and 2008
All other schedules are omitted because
they are not applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits
The exhibits listed on the accompanying
Index to Exhibits are filed as part of this Report.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
ALLIED
HEALTHCARE PRODUCTS, INC.
|
|
|
By:
|
|
|
/s/ Earl R.
Refsland
|
|
|
Earl
R. Refsland
President
and Chief Executive Officer
|
|
|
/S/ Daniel C. Dunn
|
|
|
Daniel
C. Dunn
Vice
President, Chief Financial Officer, and
Secretary
|
Dated: September
23, 2010
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on
September 23rd, 2010.
|
Signatures
|
Title
|
|
|
*
|
Chairman
of the Board
|
|
|
John
D. Weil
|
||
|
*
|
President,
Chief Executive Officer and Director (principal Executive
Officer)
|
|
|
Earl
R. Refsland
|
||
|
*
|
Director
|
|
|
William
A. Peck
|
||
|
*
|
||
|
Joseph
Root
|
Director
|
|
|
*
|
||
|
Judy
Graves.
|
Director
|
|
*
By:
|
/s/
Earl R. Refsland
|
|
Earl
R. Refsland
|
|
|
Attorney-in-Fact
|
* Such signature has been affixed pursuant to the following Power of Attorney.
51
ALLIED
HEALTHCARE PRODUCTS, INC.
RULE
12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|
COLUMN A
|
COLUMN B
|
COLUMN C
|
COLUMN D
|
COLUMN E
|
||||||||||||||||
|
Balance
at
|
Charged
to
|
Charged
to
|
||||||||||||||||||
|
Beginning of
|
costs
|
Other accounts -
|
Deductions -
|
Balance at end
|
||||||||||||||||
|
Description
|
Period
|
and expenses
|
describe
|
describe
|
of period
|
|||||||||||||||
|
For
the Year Ended June 30, 2010
|
||||||||||||||||||||
|
Accounts
Receivable
|
||||||||||||||||||||
|
Allowances
|
$ | (300,000 | ) | $ | (1,655 | ) | $ | 1,655 | (1) | $ | (300,000 | ) | ||||||||
|
Inventory
Allowance
|
||||||||||||||||||||
|
For
Obsolescence
|
||||||||||||||||||||
|
And
Excess Quantities
|
$ | (1,347,648 | ) | $ | (120,000 | ) | $ | (97,138 | )(3) | $ | 88,296 | (2) | $ | (1,476,490 | ) | |||||
|
For
the Year Ended June 30, 2009
|
||||||||||||||||||||
|
Accounts
Receivable
|
||||||||||||||||||||
|
Allowances
|
$ | (300,000 | ) | $ | (548 | ) | $ | 548 | (1) | $ | (300,000 | ) | ||||||||
|
Inventory
Allowance
|
||||||||||||||||||||
|
For
Obsolescence
|
||||||||||||||||||||
|
And
Excess Quantities
|
$ | (1,299,483 | ) | $ | (145,701 | ) | $ | (50,553 | )(3) | $ | 148,089 | (2) | $ | (1,347,648 | ) | |||||
|
For
the Year Ended June 30, 2008
|
||||||||||||||||||||
|
Accounts
Receivable
|
||||||||||||||||||||
|
Allowances
|
$ | (460,000 | ) | $ | 212,278 | $ | (52,278 | )(1) | $ | (300,000 | ) | |||||||||
|
Inventory
Allowance
|
||||||||||||||||||||
|
For
Obsolescence
|
||||||||||||||||||||
|
And
Excess Quantities
|
$ | (1,099,864 | ) | $ | (110,000 | ) | $ | (169,491 | )(3) | $ | 79,872 | (2) | $ | (1,299,483 | ) | |||||
|
(1)
|
Decrease
(Increase) due to bad debt write-offs and
recoveries.
|
|
(2)
|
Decrease
due to disposal of obsolete
inventory.
|
|
(3)
|
Increase
due to inventory revaluation. The other account charged as a
result of this revaluation was inventory before reserves. This
did not result in a change to our net inventory or net
income.
|
S-2
INDEX
TO EXHIBITS
|
Exhibit
|
||
|
No.
|
Description
|
|
|
3.1 Amended
and Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3(1) to the Company’s Registration Statement on Form S-1, as
amended, Registration No. 33-40128, filed with the Commission on May 8,
1991 (the “Registration Statement”) and incorporated herein by
reference)
|
||
|
3.2 By-Laws
of the Registrant (filed as Exhibit 3(2) to the Registration Statement and
incorporated herein by reference)
|
||
|
10.1 NCG
Trademark License Agreement, dated April 16, 1982, between Liquid Air
Corporation and Allied Healthcare Products, Inc. (filed as Exhibit 10(24)
to the Registration Statement and incorporated herein by
reference)
|
||
|
10.2 Allied
Healthcare Products, Inc. 1991 Employee Non-Qualified Stock Option Plan
(filed as Exhibit 10(26) to the Registration Statement and incorporated
herein by reference)
|
||
|
10.3 Employee
Stock Purchase Plan (filed as Exhibit 10(3) to the Company’s Annual Report
on Form 10-K for the year ended June 30, 1998 (the “1998 Form 10-K”) and
incorporated by reference)
|
||
|
10.4 Allied
Healthcare Products, Inc. 1994 Employee Stock Option Plan (filed with the
Commission as Exhibit 10(39) to the Company’s Annual Report on Form 10-K
for the year ended June 30, 1994 (the “1994 Form 10-K”) and incorporated
herein by reference)
|
||
|
10.5 Allied
Healthcare Products, Inc. 1995 Directors Non-Qualified Stock Option Plan
(filed with the Commission as Exhibit 10(25) to the Company’s Annual
Report on Form 10-K for the fiscal year ended June 30, 1995 (the “1995
Form 10-K”) and incorporated herein by reference)
|
||
|
10.6 Allied
Healthcare Products, Inc. Amended 1994 Employee Stock Option Plan (filed
with the Commission as Exhibit 10(28) to the Company’s Annual Report on
Form 10-K for the fiscal year ended June 30, 1996 (the “1996 Form 10-K”)
and incorporated herein by reference)
|
||
|
10.22 Form
of Indemnification Agreement with officers and directors (filed with the
Commission as Exhibit 10.22 to the 2002 Form 10-K and incorporated herein
by reference).
|
||
|
10.25 Amended
and restated Employment Agreement dated December 21, 2009 by and between
Allied Healthcare Products, Inc. and Earl Refsland (incorporated by
reference to 10-Q filed May 7, 2010)
|
||
|
10.25.1
Change of Control Agreement Employment Agreement dated March 16, 2007 by
and between Allied Healthcare Products, Inc. and certain executive
officers (incorporated by reference to 8-K filed March 16, 2007 with event
date of March 16, 2007)
|
||
|
10.26 Allied
Healthcare Products, Inc. 1999 Incentive Stock Plan (filed with the
Commission as Exhibit 10(26) to the 1999 Form 10-K and incorporated herein
by reference)
|
||
|
10.27 Allied
Healthcare Products, Inc. 2009 Incentive Stock Plan (filed with Commission
as Appendix A to the 2009 Proxy Statement on Schedule
14A)
|
||
S-3
|
10.28 Agreement
between Allied Healthcare Products, Inc. Medical Products Division and
District No. 9 International Association of Machinists and Aerospace
Workers dated August 1, 2000 through May 31, 2003 (filed with the
Commission as Exhibit 10.28 to the 2002 Form 10-K)
|
||
|
10.30 Loan
and Security Agreement dated November 17, 2009 by and between the Company
and Enterprise Bank & Trust, including Revolving Credit Note
(incorporated by reference to 8-K filed November 18, 2009 with event date
of November 13, 2009)
|
||
|
10.31 Agreement
dated August 27, 2004 between Allied Healthcare Products, Inc and Abbott
Laboratories, Inc. (incorporated by reference to 8-K filed August 30, 2004
with event date of August 27, 2004)
|
||
|
21 Subsidiaries
of the Registrant (filed with the Commission as Exhibit 21 to
the 2000 Form 10-K)
|
||
|
23.1 Consent
of RubinBrown LLP (filed herewith)
|
||
|
24 Form
of Power of Attorney – (filed herewith)
|
||
|
31.1 Certification
of Chief Executive Officer (filed herewith)
|
||
|
31.2 Certification
of Chief Financial Officer (filed herewith)
|
||
|
32.1 Sarbanes-Oxley
Certification of Chief Executive Officer (provided
herewith)*
|
||
|
32.2 Sarbanes-Oxley
Certification of Chief Financial Officer (provided
herewith)*
|
*
Notwithstanding any incorporation of this Annual Report on Form 10-K in any
other filing by the Registrant, Exhibits designated with an asterisk (*) shall
not be deemed incorporated by reference to any other filing under the Securities
Act of 1933 or the Securities Exchange Act of 1934 unless specifically otherwise
set forth therein.
S-4